It is still too early to stop high interest rates in the US. That was pretty much what Fed Chairman Jerome Powell said yesterday as he continued to hold the view that interest rates should rise to suppress inflation. This time, traders believed him, so dollar rose sharply, while the bond market saw a sharp sell-off.

Powell suggested that interest rates may increase to a level that is higher than everyone expects before the Fed takes a pause to observe economic data in the US. It was similar to what he said last week, but at that time markets ignored his warning as they did not anticipate a strong labor market data. Now that everyone has seen the latest employment report, that is, non-farm payrolls rose by 517,000, it is clear where the Fed is headed and why it is not going to cut rates.

Fed officials forecasted interest rates to peak at 5.1% in December; however, it is likely that they will change it in response to the current situation. Accordingly, that will lead to stronger demand for dollar, pushing EUR/USD and GBP/USD down further.

Talking about the forex market, there is quite a lot of pressure on EUR/USD as no one believes that the ECB will be able to maintain its hawkish policy. To stop the bear market, traders must keep the quote above 1.0720. That will spur a rise to 1.0770 and possibly, to 1.0800 and 1.0830. In case of a decline below 1.0720, pressure will increase, which will lead to a further fall to 1.0680 and 1.0650.

In GBP/USD, the sideways trend remains, so buyers need to push the quote above 1.2070 to regain their advantage. Only the breakdown of this resistance will push the pair to 1.2140, after which it will be possible to head towards 1.2200. But in the event that pressure returns and bears take control of 1.2010, the pair will plunge to 1.1950 and 1.1880.