EUR/USD drops under 1.2000 as Fed’s decision and Powell’s comments support the Dollar

The EUR/USD pair dropped over 0.60%, falling below the 1.2000 level on Wednesday, as the US Federal Reserve decided to keep interest rates unchanged. During this time, Fed Chair Jerome Powell chose not to address political questions and maintained a neutral stance regarding monetary policy. Currently, the exchange rate sits at 1.1955.

Euro declines as Fed indicates steadiness, labor market stability, and strong dollar fundamentals

In a press conference, Jerome Powell sidestepped inquiries about politics and whether he would continue on the Federal Reserve Board post-term. He mentioned that there was a consensus regarding the decision made and emphasized that data would remain a vital tool for assessing the situation during future meetings.

Switching to the labor market, Powell described its stability, even though inflation is still slightly high. He noted that core PCE inflation could hover close to 3% and expressed his expectation for price pressures to peak around mid-year.

In a CNBC interview, Scott Bessent remarked that he wouldn’t intervene to support the Japanese yen, highlighting that a strong dollar policy involves maintaining solid economic fundamentals.

His comments came after President Donald Trump’s remarks on Tuesday, where he maintained that the dollar is “great” when asked about its recent weakness. This encouraged traders, resulting in the U.S. dollar index (DXY) hitting a four-year low.

Meanwhile, in the eurozone, Germany’s GfK consumer confidence showed improvement in February. European Central Bank (ECB) officials, however, voiced concerns regarding the dollar’s weakness, indicating it could drive inflation beyond the ECB’s 2% target.

Daily market updates: Euro stabilizes as US dollar strengthens

• The euro weakened as the dollar recovered ahead of the Fed meeting, with the US dollar index (DXY) rising 0.55% to 96.34.
• The Federal Reserve held interest rates steady at 3.50% to 3.75% following a split vote. Candidates Stephen Millan and Christopher Waller, who are in the running to succeed Powell, supported a 25 basis point rate cut.
• Fed officials noted signs of stabilization in the unemployment rate but reiterated that inflation remains “moderately elevated.” They highlighted that the economic outlook is uncertain and future decisions would be informed by the dual mandate.
• Germany’s GfK Consumer Confidence Index rose to -24.1 from -26.9 in January. The survey suggested improved purchasing intent and stable saving intent, with both economic and income expectations getting better.
• François Villeroy de Galhau from the ECB indicated that they’re closely watching the euro’s strengthening and its potential negative impact on inflation. He pointed out that the dollar’s weakness against the euro signals declining confidence due to erratic US economic policies.
• Luis Deguindos, ECB Vice-President, mentioned last summer that a EUR/USD rate around 1.20 was acceptable, but warned that anything higher could create challenges.
• Traders anticipate 44 basis points of easing from the US Federal Reserve by year-end, according to available data.

Technical outlook: EUR/USD stabilizes near 1.1950

The EUR/USD has pulled back from its year-to-date peak of 1.2082, hovering around 1.1900. It appears set to stay sideways as it awaits the Fed’s upcoming decisions. The Relative Strength Index (RSI) supports this, as it has left overbought territory and is now nearing neutral levels.

A hawkish outcome from the Fed might push the EUR/USD below 1.1900 and test the July 1 high of 1.1830, while, if weakness in the labor market persists, the EUR/USD could climb toward 1.2000 and potentially exceed its year-to-date highs.