EUR/USD trades quietly as investors await Fed policy meeting
|- EUR/USD consolidates in a tight range near 1.0500, with investors focusing on the Fed’s policy meeting.
- The Fed is widely expected to cut interest rates by 25 bps but to deliver slightly hawkish remarks on policy guidance.
- ECB’s Rehn said that inflation stabilizing near the central bank’s target of 2% paves the way for more interest rate cuts.
EUR/USD trades in a tight range near the psychological figure of 1.0500 in Wednesday’s North American session. The major currency pair consolidates as investors await the outcome of the last Federal Reserve’s (Fed) policy meeting of the year, which will conclude at 19:00 GMT. The Fed will also release the revision of the Summary of Economic Projections (SEP), also known as the dot plot, which shows fresh economic projections and where policymakers see Federal Fund Rates heading in the medium and long term.
Analysts at Bank of America (BofA) expect the Fed to reduce interest rates by 25 basis points (bps) to the 4.25%-4.5% range. The CME FedWatch tool also shows that market participants have fully priced in a 25 bps interest rate reduction.
With traders fully pricing in a standard rate cut announcement, investors will focus primarily on Fed Chair Jerome Powell’s press conference on interest rate guidance. BofA analysts expect Powell to signal a gradual rate-cut approach ahead, potentially indicating a pause in January if economic data meets expectations.
Meanwhile, traders are also confident that the Fed will leave interest rates unchanged at 4.25%-4.50% in January, according to the CME FedWatch tool.
Ahead of the Fed policy decision, the US Dollar (USD) shows a muted price action, with the US Dollar Index (DXY) wobbling near 107.00.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| 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% | |
| AUD | -0.28% | -0.33% | -0.32% | -0.19% | -0.23% | 0.10% | -0.14% | |
| NZD | -0.38% | -0.43% | -0.41% | -0.27% | -0.32% | -0.10% | -0.24% | |
| CHF | -0.14% | -0.19% | -0.17% | -0.04% | -0.08% | 0.14% | 0.24% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Daily digest market movers: EUR/USD remains in tight range with Fed policy in focus
- EUR/USD trades on the sidelines due to consolidation in the US Dollar ahead of the Fed’s policy decision. The Euro (EUR) is higher across the board on Wednesday but its outlook remains bearish as investors expect the European Central Bank (ECB) to head to the neutral rate, which officials have forecasted around 2%, by the first half of 2025.
- Traders expect the ECB to reduce interest rates at every meeting till June 2025. Officials are highly concerned about growing economic risks in the Eurozone and are confident that price pressures will sustainably return to the central bank’s target next year.
- In the Wednesday's European session, ECB policymaker and Governor of National Bank of Belgium Pierre Wunsch delivered very dovish remarks on the policy outlook. Wunsch said in an interview with Reuters Global Markets Forum that he sees "four more rate cuts" as meaningful scenari in 2025. He guided that Euro's partity with US Dollar would be required to componsate for the impact US tariffs on Eurozone growth.
- On Tuesday, ECB policymaker and Finnish central bank Governor Olli Rehn said that inflationary pressures stabilizing near the bank’s target of 2% set the stage for further interest rate reduction. Rehn refrained from providing a specific rate cut path and said, “The speed and scale of the rate cuts will be determined in each meeting on the basis of incoming data and comprehensive analysis.”
- When asked about how the continent will face incoming tariff hikes from the US President-elect Donald Trump administration, Rehn said, "Negotiation is preferable, and the European Union's (EU) negotiating position can be strengthened by demonstrating in advance that it is ready to take countermeasures if the United States threatens Europe with higher tariffs.
Technical Analysis: EUR/USD stays below 20-day EMA
EUR/USD has traded back and forth around the psychological figure of 1.0500 over the last five trading days. The major currency pair faces pressure near the 20-day Exponential Moving Average (EMA), which trades around 1.0535, suggesting that the near-term trend is bearish.
The 14-day Relative Strength Index (RSI) revolves around 40.00. The bearish momentum should trigger if the RSI (14) falls below that level.
Looking down, the two-year low of 1.0330, reached on November 22, will provide key support. Conversely, the December 6 high of 1.0630 will be the key barrier for the Euro bulls.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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