Waller's hawkish comments drag EURUSD lower 📣

Governor Waller discussed the outlook for the U.S. economy and its implications for monetary policy. He highlighted the positive economic data in recent months, with strong economic activity and labor market performance. However, he expressed uncertainty about whether the current monetary policy is sufficiently restrictive to achieve the FOMC's 2 percent inflation target. Waller presented two potential scenarios: one where economic growth moderates, aligning with the inflation objective, and another where persistent growth could undermine inflation progress. He emphasized the need to closely monitor incoming data to determine the appropriate monetary policy direction.

Key Points:

• The Federal Reserve began raising interest rates 19 months ago to control inflation
• Economic data shows strong performance in employment and stable prices
• The data shows the job market can cool via reduction in job vacancies and not necessarily a loss of jobs
• We still have one rate hike penciled in, will be totally driven by the data if it happens, or when
• No one expects any kind of rate cut soon
• We need to see how inflation progresses in 6-12 months, then see about cutting rates
• More action on policy rate would be needed if demand and economic activity keep up with the recent pace

The EUR remains weak compared to the USD. Today, we are observing a flight of capital to safe assets, evident in the strengthening dollar, strong gains in gold, and rising yields of U.S. bonds. EURUSD reacted to the upper limit of the downward channel with significant declines. If the resistance at the 1.0535 level is broken, we might see another move downward. Otherwise, the upper limit of the downward trend must be breached to see a change in trend.