The USD fears inflation. Overview for 20.10.2023

The primary currency pair exceeded the previous day’s levels on Friday. The current EURUSD exchange rate stands at 1.0575.

The US released data for existing homes in September, which dropped to 3.96 million from 4.04 million previously. The forecast was, however, even more pessimistic, suggesting a decrease to 3.89 million homes due to high borrowing costs.

Initial jobless claims in the US decreased to 198,000, down from the previous week’s mark of 209,000. The strengthening of the employment market is currently perceived as a negative signal as it is considered one of the factors contributing to inflation.

Federal Reserve chair, Jerome Powell, delivered a speech yesterday with a clear message: a strong economy necessitates a strict monetary policy. Any additional signs of the economy growing above the trend could be a basis for further tightening of monetary policy.

As mentioned previously, the Fed’s agenda may involve considerable tightening. Achieving a return to 2% inflation will require a period of economic growth below trend, along with localised easing of employment market conditions.

The fact that the economy is still strong, expanding above trend, was surprising to the Fed.

Overall, Powell’s stance on the monetary policy was quite aggressive. The likelihood of tightening supports the US dollar, but the market has doubts.

By the way, this was the Fed’s last official speech before the November meeting.