- Investors are keeping an eye on the Fed's policy meeting, with EUR/USD trading in a narrow range around 1.0500.
- Although the Fed will cut rates by 25 basis points, it is widely expected to make somewhat more hawkish statements on its policy guidance.
- ECB President Rehn said stable inflation near the central bank's 2% target would pave the way for further interest rate cuts.
In North American trading on Wednesday, EUR/USD is trading in a narrow range around the psychological level of 1.0500. Major currency pairs are firming up as investors await the outcome of the Federal Reserve's last policy meeting of the year, which ends at 7pm Japan time. The Fed also plans to release a revised version of its Summary Economic Projections (SEP), also known as the dot plot, which provides new economic forecasts and information about where the federal funds rate is likely to go in the medium to long term. It shows what is happening.
Analysts at Bank of America (BofA) expect the Fed to cut interest rates by 25 basis points (bps) to a range of 4.25% to 4.5%. The CME FedWatch tool also shows that market participants have fully priced in a 25bps rate cut.
Traders have fully priced in the announcement of a standard rate cut, and investors will largely focus on Chairman Jerome Powell's press conference on rate guidance. BofA analysts expect Powell to signal a gradual approach to rate cuts going forward, potentially signaling a halt in January if economic data is as expected.
Meanwhile, traders are also confident that the Fed will keep interest rates unchanged at 4.25% to 4.50% in January, according to the CME FedWatch tool.
Ahead of the Fed's policy decision, the US dollar (USD) is showing calm price movements, with the US dollar index (DXY) fluctuating around 107.00.
USD price today
The table below shows the percentage change of the US dollar (USD) against major currencies today. The US dollar was the strongest against the New Zealand dollar.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.06% | -0.03% | 0.08% | 0.06% | 0.28% | 0.38% | 0.14% | |
| EUR | 0.06% | 0.02% | 0.15% | 0.11% | 0.33% | 0.43% | 0.19% | |
| GBP | 0.03% | -0.02% | 0.12% | 0.09% | 0.32% | 0.41% | 0.17% | |
| JPY | -0.08% | -0.15% | -0.12% | -0.04% | 0.19% | 0.27% | 0.04% | |
| CAD | -0.06% | -0.11% | -0.09% | 0.04% | 0.23% | 0.32% | 0.08% | |
| australian dollar | -0.28% | -0.33% | -0.32% | -0.19% | -0.23% | 0.10% | -0.14% | |
| new zealand dollar | -0.38% | -0.43% | -0.41% | -0.27% | -0.32% | -0.10% | -0.24% | |
| swiss franc | -0.14% | -0.19% | -0.17% | -0.04% | -0.08% | 0.14% | 0.24% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select USD from the left column and move along the horizontal line to Japanese Yen, the percentage change displayed in the box represents USD (base)/JPY (estimate).
Daily Digest Market Trends: EUR/USD moves in a narrow range as Fed policy becomes the focus
- The EUR/USD pair is trading modestly as the US dollar strengthens ahead of the Fed's policy decision. The euro (EUR) rose across the board on Wednesday, as investors expected the European Central Bank (ECB) to move toward neutral interest rates (around 2%), which officials expect by the first half of 2025. The outlook remains bearish.
- Traders expect the ECB to cut interest rates at every meeting until June 2025. Officials are very concerned about the growing economic risks in the euro area and are confident that price pressures will return sustainably to the central bank's target next year.
- At the European Commission on Wednesday, Pierre Wunsch, ECB policymaker and head of the National Bank of Belgium, made some very dovish comments about the policy outlook. In an interview with the Reuters Global Markets Forum, Wansch said he believes “four more interest rate cuts” would be a meaningful scenario in 2025. He expressed the view that it is necessary to compensate for the impact on regional growth.
- ECB policymaker and Finland's central bank governor Olli Rehn said on Tuesday that he was ready for further interest rate cuts as inflation pressures remained stable around the central bank's 2% target. Lane declined to discuss the specific route for rate cuts, saying, “The speed and size of rate cuts will be determined at each meeting based on future data and comprehensive analysis.”
- When asked about how the continent would face future tariff increases by the administration of President-elect Donald Trump, Lane said: “Negotiations are preferable. The European Union's negotiating position is “We can strengthen this by showing the EU in advance that we are ready.” If the US threatens Europe with increased tariffs, it will take countermeasures.
Technical analysis: EUR/USD remains below the 20-day EMA
EUR/USD has been bouncing back and forth around the psychological level of 1.0500 for the past five trading days. Major currency pairs are facing pressure near their 20-day exponential moving average (EMA), which is hovering around 1.0535, suggesting a bearish short-term trend.
The 14-day Relative Strength Index (RSI) is hovering around 40.00. If RSI (14) falls below that level, bearish momentum should be triggered.
On the downside, the two-year low of 1.0330 hit on November 22nd will provide important support. Conversely, the December 6th high of 1.0630 will be a key barrier for euro bulls.
Fed Frequently Asked Questions
Monetary policy in the United States is shaped by the Federal Reserve Board (Fed). The Fed has two responsibilities: achieving price stability and promoting full employment. The main tool to achieve these goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, interest rates will be raised, increasing borrowing costs for the entire economy. This makes the US a more attractive place for international investors to put their money, and the US dollar (USD) appreciates. If inflation falls below 2% or unemployment is too high, the Fed could lower interest rates to encourage borrowing, which would weigh on the dollar.
The Federal Reserve (Fed) holds eight annual policy meetings where the Federal Open Market Committee (FOMC) assesses economic conditions and decides on monetary policy. Twelve Fed officials will attend the FOMC meeting. Seven board members, the president of the New York Fed, and four of the remaining 11 regional reserve bank presidents will serve rotating one-year terms. .
In extreme circumstances, the Federal Reserve may resort to a policy called quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stalled financial system. This is a non-standard policy tool used in times of crisis or when inflation is extremely low. This was the Fed's weapon of choice during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE typically weakens the US dollar.
Quantitative tightening (QT) is the reverse process of quantitative easing, in which the Federal Reserve stops buying bonds from financial institutions and reinvests the principal of maturing bonds to buy new bonds. Never. It is usually positive for the value of the US dollar.
