- The Federal Reserve is likely to keep its policy rates unchanged for the fifth consecutive time.
- The wording of the statement and comments from Chairman Powell could shed light on future policy directions.
- If investors are optimistic about potential interest rate cuts in September, the US dollar may weaken.
The Federal Reserve is set to announce its interest rate decision and release a policy statement following the July meeting on Wednesday.
Market watchers generally believe that the Central Bank will maintain its policy after having cut rates by 25 basis points to the 4.25%-4.50% range last December.
According to the CME FedWatch tool, traders are not predicting a rate cut in July. However, there’s a roughly 64% likelihood of a 25 basis point cut come September. This positioning hints that the US dollar could face various risks around the upcoming announcement.
A revised economic forecast, published in June, indicated that policymakers are anticipating a 50 basis point cut in 2025, along with 25 basis point reductions in both 2026 and 2027.
After the June meeting, Governor Christopher Waller expressed his backing for rate cuts in July, stressing that the labor market shouldn’t wait for issues to arise before policy adjustments are made. Fed Governor Michelle Bowman echoed similar sentiments, pointing to easing inflation pressures. In parallel, President Trump has continued to apply pressure on the Federal Reserve, asserting that rate cuts could boost the US economy during a discussion with British Prime Minister Kiel Stages on Monday.
As the Fed meeting approaches, analysts at TD Securities suggest the FOMC will likely retain its current policy stance next week, maintaining rates between 4.25% and 4.50%. They expect Powell to emphasize a patient, data-driven approach while keeping options open for future moves in September. It’s anticipated that both Governor Bowman and Waller may oppose this view in the meeting.
When will the Fed release its interest rate decision and how might it impact EUR/USD?
The Fed plans to announce its interest rate decision and release its monetary policy statement at 18:00 GMT on Wednesday, followed by a press conference from Chairman Jerome Powell starting at 18:30 GMT.
If Powell suggests that interest rates could be lowered in September, especially after recent trade agreements with key partners like the EU and Japan, the USD may be subject to increased selling pressure.
On the other hand, if Powell continues to advocate for a cautious approach, referring to persistent inflation and a stable labor market, the USD could strengthen against its counterparts. In this scenario, investors might hang tight for fresh inflation and employment data to gauge potential rate cuts in September.
Eren Sengezer, a Lead Analyst at FXSTREET, provides a short-term technical outlook for EUR/USD.
He mentions that the recent trend indicates growing bearish momentum. The relative strength index (RSI) on the daily chart is below 50, and EUR/USD is trading under the 50-day simple moving average (SMA) for the first time since late February.
Looking downwards, there’s support around 1.1440, which aligns with a Fibonacci 23.6% retracement level, followed by levels at 1.1340 (100-day SMA), 1.1200 (Fibonacci 38.2% retracement), and 1.1900 (a static level).
