EUR/USD slides near 1.0830 as the US Dollar gains strength post-Fed policy decision. Read the latest market insights on The Western Connect.
EUR/USD Weakens as Federal Reserve Holds Rates Steady
TWC Magazine: The EUR/USD currency pair has dipped near 1.0830 as the US Dollar (USD) continues its upward trajectory during North American trading hours. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, surged toward 104.00, reflecting increased investor confidence in the USD.
The latest shift in forex markets follows the Federal Reserve’s decision to keep interest rates unchanged within the 4.25%-4.50% range, as widely expected. Fed Chair Jerome Powell emphasized a cautious approach, stating, “We are not going to be in any hurry to move on rate cuts.” Despite maintaining its guidance of two interest rate cuts in 2025, the Fed highlighted heightened uncertainty surrounding President Donald Trump’s economic policies.
Additionally, the Fed revised its forecast for the Core Personal Consumption Expenditures Price Index (PCE) to 2.8% for 2025, up from the previous projection of 2.5%. Economic growth expectations also took a hit, with the GDP forecast lowered from 2.1% to 1.7%. Powell acknowledged concerns over tariffs, noting that protectionist policies tend to “bring growth down and inflation up.”
In contrast, President Trump has advocated for rate cuts, arguing that the economic impact of US tariffs should prompt a more aggressive monetary easing approach. Following the Fed’s decision, Trump took to Truth Social, urging the central bank to “do the right thing.”
Market Movers: Euro Under Pressure Amid Economic Concerns
The Euro (EUR) faced additional downward pressure as European Central Bank (ECB) President Christine Lagarde warned of potential economic shocks stemming from US-imposed tariffs. Speaking before the Committee on Economic and Monetary Affairs of the European Parliament, Lagarde highlighted that a 25% tariff on European imports could shave 0.3% off Eurozone GDP growth in the first year alone, with retaliatory measures worsening the impact to 0.5%.
Concerns over a slowing Eurozone economy could prompt the ECB to consider further rate cuts, weakening the Euro’s appeal. However, Germany’s decision to end over a decade of fiscal conservatism by increasing domestic consumption and defense spending could provide some economic resilience.
On the inflation front, Lagarde projected that retaliatory trade actions and a weaker Euro could temporarily drive inflation higher by 0.5%. However, she reassured markets that long-term inflationary pressures would subside as economic activity cools.
Technical Analysis: EUR/USD at a Crossroads
EUR/USD slipped below the critical 1.0900 level, with support now seen at the December 6 high of 1.0630. Despite the recent decline, the pair maintains a bullish outlook in the long term as it remains above the 200-day Exponential Moving Average (EMA), currently positioned at 1.0660.
The Relative Strength Index (RSI) has eased from an overbought level of 75.00, suggesting a moderation in bullish momentum. Traders should watch the psychological resistance at 1.1000, which remains a key hurdle for Euro bulls.
Looking Ahead: Key Market Watchpoints
- Monetary Policy: Fed’s future rate cut decisions and ECB’s response to economic slowdown concerns.
- Trade Tensions: Potential US tariffs on European imports and subsequent retaliatory measures.
- US Economic Data: Jobless claims and inflation figures influencing market sentiment.
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