- EUR/USD has moved past 1.1500 following the Fed’s recent rate decision and updates to the DOT plot.
- The FOMC still projects a 50 basis point cut in 2025, but uncertainty around policy has complicated the dot plot.
The EUR/USD experienced some volatility on Wednesday after the Federal Reserve (Fed) decided to keep interest rates steady, something that was largely expected by investors. The currency pair is likely to fluctuate around the 1.1500 level as traders wait for Fed Chairman Jerome Powell’s upcoming press conference and Q&A session.
The Fed continues to project an average reduction of 50 basis points for interest rates by the year’s end, as indicated by CME’s FedWatch tool. However, uncertainties in trade policy have broadened expectations among policymakers, with some officials anticipating a higher rate at year-end compared to previous economic forecasts.
More coming…
Market reaction
Price action jumped to a higher volatility after the FOMC announcement, but the overall momentum remains strong as investors look to Fed Chair Powell’s comments.
EUR/USD 5 minute chart
FAD FAQ
US monetary policy is directed by the Federal Reserve System, which has two main goals: stability in prices and full employment. To achieve these aims, the Fed adjusts interest rates. Rising prices above the Fed’s 2% target often lead to increased rates, elevating overall borrowing costs and making the US dollar stronger. Conversely, if inflation falls below 2% or unemployment is high, the Fed might lower rates to encourage borrowing.
The Federal Reserve holds eight policy meetings each year, wherein the Federal Open Market Committee (FOMC) evaluates the economic climate and decides on monetary policies. Comprising 12 federal officials—including seven members of the Governor’s Committee, the chair of the Federal Reserve Bank of New York, and four Regional Reserve Bank presidents—this group rotates on a yearly basis.
In extraordinary situations, the Federal Reserve may adopt Quantitative Easing (QE), a strategy that significantly boosts the availability of credit in the financial system. Typically employed in a crisis or when inflation is exceptionally low, QE involves the Fed printing more money to buy high-quality bonds from financial institutions. This approach was notably used during the 2008 financial crisis and usually results in a weaker US dollar.
Quantitative Tightening (QT) serves as the reverse of QE, where the Fed stops purchasing bonds and doesn’t reinvest the principal from maturing bonds in new bonds. This process generally has a positive effect on the value of the US dollar.
