USD remains strong. Overview for 08.02.2023

At the end of the week, EURUSD looks neutral but there are still risks of a decline. The current quote is 1.0730.

In his speech delivered yesterday, the chairman of the Fed Jerome Powell singled out the strength of the employment market in the country and announced that the CB would be working hard to decrease inflation. There is, indeed, some evidence of the desinflation process forming but this is clearly not enough.

No one from the Fed had expected that the labour sector would be that strong, Powell said. He meant the statistics that came out on Friday where the NFP had grown by 517 thousand workplaces. This year, the Fed counts on a serious decline in the CPI. The inflation goal is around 2%. However, before it happens, the interest rate must remain restrictive.

The main reason why Powell does not want to see the employment market so strong is simple. Such dynamics will push wages up. And this will help inflation remain high. As unemployment grows, households cut down on expenses, and professionals who lose jobs cannot count on previous income levels. Thus inflation slows down. Things are simple but only from the regulator’s point of view. From the point of economic processes, this is a very ambiguous story.

To put it simple: the Fed needs to make the economy weak to beat inflation. The dollar likes it and remains strong.