Forex Analysis & Reviews: 17.04.2025

17.04.2025 11:34 AM

Powell Sees a More Restrictive Fed Policy This Year

The euro showed little reaction, while the pound slipped slightly against the U.S. dollar following yesterday's speech by Federal Reserve Chairman Jerome Powell.

According to Powell, the Fed is currently focused on the dual mandate set by Congress—maximum employment and price stability. The latter, based on his remarks, may pose some challenges. "Despite heightened uncertainty and recession risks, the U.S. economy remains on solid footing. The labor market is at or near maximum employment. Inflation has significantly declined but still slightly exceeds our 2% target," Powell stated.

The Fed Chair emphasized that new preliminary GDP data for Q1, which will be available to the central bank in the coming weeks, will play an important role. "Available data suggests that growth slowed in the first quarter compared to last year's steady pace," Powell said. He added that while consumer spending and strong imports—likely due to businesses trying to stay ahead of Trump's new tariff policy—supported Q1 performance, pressures on GDP growth will increase throughout the year. "Household and business surveys show a sharp decline in sentiment and increased uncertainty about the outlook, largely reflecting concerns over trade policy," Powell noted.

As for the labor market, Powell said that over the first three months of this year, nonfarm payrolls increased by an average of 150,000 per month. While job growth has slowed compared to last year, a combination of low layoffs and modest labor force growth has kept unemployment low and stable. However, Powell expressed concern about the ratio of job openings to job seekers, which remained slightly above 1. "Wage growth remains moderate, still outpacing inflation. Overall, the labor market appears to be in a sustainable and broadly balanced state, and it is not a major source of inflationary pressure," Powell added.

On the topic of inflation targets, Powell pointed out that inflation has dropped significantly from the pandemic peaks of mid-2022, without the painful rise in unemployment that often accompanies efforts to curb high inflation. "Progress on inflation continues at a gradual pace, and recent readings remain above our 2% target."

Regarding monetary policy, Powell stated that changes will occur only when the Fed gains a better understanding of economic shifts and the impact of the Trump administration's new trade policy. "Tariffs are likely to cause a temporary rise in inflation, though inflationary effects could also be more persistent," Powell warned. "It is our duty to firmly anchor long-term inflation expectations and ensure that one-time price hikes do not become a permanent inflation issue. In fulfilling this responsibility, we will balance our mandates of maximum employment and price stability."

In conclusion, Powell acknowledged that the Fed may face a difficult situation where achieving its dual mandate becomes increasingly complex and did not rule out a possible rate hike in the event of strong inflationary pressure.

Technical Outlook for EUR/USD

Currently, buyers must focus on breaking above the 1.1405 level. Only then can they aim for a test of 1.1467. From there, a move toward 1.1525 becomes possible, although achieving this without strong support from large players could be challenging. The ultimate target would be the 1.1545 high. If the instrument declines, only around the 1.1340 level do I expect any serious action from large buyers. If there is no support there, it would be preferable to wait for a drop to the 1.1260 low or consider long positions from 1.1165.

Technical Outlook for GBP/USD

Pound buyers need to reclaim the nearest resistance at 1.3240. Only this would allow them to target 1.3290, which will be quite difficult to break above. The ultimate goal would be the 1.3340 area. If the pair declines, bears will likely attempt to take control at 1.3190. A successful breakout below that range would deal a significant blow to the bulls and could drive GBP/USD down toward the 1.3130 low, with a potential extension to 1.3080.

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*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.