Federal Reserve Advocates Patience as UK Economic Woes Plague Pound

The EURUSD pair is currently hovering near recent lows, extending the downside on Monday as markets still digest the stellar NFP report released last Friday and the unexpected verbal intervention from Powell, which he decided to make in the interview on Sunday. Momentum indicators suggest that the pair could have another leg lower; however, the magnitude of the decline from Friday (-1.4%), breakdown of the bearish channel, and proximity of December lows on the daily chart (1.0725) suggest that the pair could be primed for a short-term rebound:In an analysis released on Monday, Neel Kashkari, President of the Minneapolis Federal Reserve, presents a nuanced view on monetary policy. Kashkari asserts that a potentially higher neutral rate provides flexibility to the Fed, allowing them more time to assess upcoming data before contemplating rate cuts. This approach minimizes risks to economic recovery, suggesting that monetary policy might not be as tight as previously thought. Despite acknowledging weaknesses, such as rising consumer delinquencies, Kashkari underscores the resilience of interest-sensitive sectors and progress toward the Fed's inflation target.Federal Reserve officials, led by Chair Jerome Powell, cautiously embrace the recent moderation in inflation. In a ‘60 Minutes’ interview aired on Sunday, Powell emphasized the importance of patience, preferring to wait before considering any "significant steps" towards interest rate cuts. He stressed the need to confirm sustained inflation reduction to the 2% target and said that a dovish move is unlikely in March. The unexpected decision to talk about monetary policy in the interview has been viewed by the market as an important signal that the Fed attempts to influence market expectations, as US data increasingly suggests that early rate cuts could be premature and lead to an inflation comeback. That’s why we saw an acceleration of dollar bullish momentum on Monday and a bearish reaction in the stock market, which may linger for some time. Pound Sterling (GBP) faced challenges in the European session amid challenging market sentiment. The GBP/USD pair experienced a sharp decline triggered by robust United States Nonfarm Payrolls data, reducing expectations of an imminent Federal Reserve rate cut in March. Strong job creation figures and unexpected wage growth indicate persistent inflation pressures in the US. For Bank of England (BoE) policymakers, the situation becomes more complex as fears of a technical recession in the UK economy deepen. The UK Office for National Statistics (ONS) reports a 0.1% contraction in the revised Q3 Gross Domestic Product (GDP) estimates, casting a shadow on the country's economic outlook. The cost-of-living crisis, worsened by higher interest rates, compels businesses to operate with reduced capacity. The GBP/USD pair struggles to maintain ground, breaching the crucial support level of 1.2600 amid bearish market sentiment. The short-term outlook for the pair remains negative as it slips below the 20-day and 50-day Exponential Moving Averages (EMAs) at approximately 1.2687 and 1.2642, respectively. Economic uncertainties in both the Eurozone and the United Kingdom contribute to a cautious forex landscape, with traders closely monitoring central bank actions and economic data releases for further cues.