The EUR/USD pair dropped over 0.43% on Wednesday after the Federal Reserve implemented a “hawkish interest rate cut.” Fed Chairman Jerome Powell emphasized that “a rate cut in December is far from a foreseeable conclusion.” At that moment, the pair was trading near its weekly low at 1.1601, with traders eyeing the monthly low of 1.1542.
The euro reached a five-day low around 1.1577 as the Federal Reserve hinted at a potential policy pause.
Post-decision, Powell stated, “Future rate cuts at the December meeting are not a foregone conclusion, and we’re a long way from finalizing anything.” He noted the differing opinions within the Federal Open Market Committee (FOMC) but mentioned that the primary focus is on the upcoming December meeting.
Powell pointed out that the September Summary of Economic Projections reflected a federal funds rate at or near neutral, suggesting that some officials might prefer to take a wait-and-see approach.
After his comments, EUR/USD dropped, briefly climbing above 1.1600 before hitting a five-day low of 1.1577, only to later recover back to 1.1500.
According to LSEG data, the likelihood of an interest rate cut in December now stands at 62%, a significant decrease from around 85% prior to the Fed’s announcement.
The US Dollar Index (DXY), which measures the dollar against six other currencies, increased by 0.63% to 99.28.
Now, all eyes are on the European Central Bank’s (ECB) monetary policy decision expected on Thursday, where Governor Christine Lagarde and others are likely to maintain the current interest rates.
Daily market movements: EUR/USD declines as Fed adopts a hawkish stance
- The Fed lowered interest rates by 25 basis points to a range of 3.75% to 4%, meeting market expectations. The decision wasn’t unanimous, as two members opposed it. Governor Stephen Milan sought a 50 basis point cut, while Jeffrey Schmidt from the Kansas City Fed preferred to keep rates unchanged.
- Concerning balance sheet reductions: “The Committee has decided to finish reducing total securities holdings by December 1.”
- Traders are also monitoring the potential for a U.S.-China trade deal ahead of a meeting between President Trump and Chinese President Xi Jinping in South Korea on Thursday.
- In France, budget discussions are ongoing, with particular attention on the prospect of a wealth tax. The country’s Socialist Party has warned it may seek to topple the government by week’s end unless next year’s budget features significant tax hikes for the wealthy.
Technical outlook: EUR/USD turns bearish, with sellers targeting 1.1500
EUR/USD continues its downward trend, with sellers looking for a decisive break below 1.1550, aiming for the October 9 low of 1.1542. A break beyond this level would expose 1.1500 and the August 1 low of 1.1391.
If, however, EUR/USD manages to hold above 1.1600, it could stabilize within the 1.1600-1.1650 range until buyers push past that level and set their sights on the 1.1700 mark.
