- EUR/USD pared gains on Thursday after the Federal Reserve met market expectations for further interest rate cuts.
- As most investors expected, the Fed cut its key policy rate by 25 basis points.
- Market participants are now focused on whether the Fed will cut rates one more time in 2024.
On Thursday, EUR/USD pared its gains and returned to the 1.0800 handle after the Federal Reserve implemented a widely expected 25bps rate cut. With the decision to cut interest rates in November now firmly in place, interest rate traders and global markets will immediately turn to wait-and-see on December 18th. Traders are hoping the Fed will decide to cut rates by another quarter point to close out the year. Fed interest rate actions.
Fed's Jerome Powell: He doesn't want the labor market to weaken significantly going forward
The Fed on Thursday put on the table a subsequent quarter-point rate cut, on top of September's deep 50bps rate cut. The additional 25bps will meet investor expectations and keep the market running smoothly, but investors will soon shift to considering the odds for a three-peat in December. Interest rate traders are pricing in another 25bps rate cut by the Fed in December, according to CME's FedWatch tool. Investors hoping for a final quarter-point rate cut in December are contending with some expectations that the Fed could keep it in place beyond November, but the The probability of a 25bps rate cut is 67%.
Friday's University of Michigan (UoM) Consumer Confidence Index statistics will round out a busy schedule of releases this week. The median market forecast expects the UoM sentiment survey to rise to 71.0 in November from a cautious 70.5 last month.
EUR/USD price prediction
EUR/USD rallied on Thursday with support from the Fed, orbiting north of the 1.0700 handle before falling into congestion around 1.0800. Fiber is stuck near a familiar technical zone, with price action struggling to recoup losses after dropping sharply earlier this week and falling further below the 200-day exponential moving average (EMA) near 1.0900.
EUR/USD daily chart
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 stymied 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.
