EUR/USD stable as investors eye Fed rate cut and Powell's remarks

• Investors remain cautious ahead of the Federal Reserve’s policy decision, keeping EUR/USD stable around 1.1640.
• Today’s ADP and JOLTS figures show solid job demand but come after a series of worrying labour indicators in the US.
• The Dollar remains near six-week lows, with markets already pricing in a 25-basis-point rate cut on Wednesday.

EUR/USD trades with limited direction on Tuesday, holding around 1.1640 at the time of writing as market participants avoid taking major positions ahead of Wednesday’s Federal Reserve (Fed) meeting. Expectations are firmly anchored as Futures markets assign nearly a 90% chance to a 25-basis-point rate cut, according to the CME FedWatch tool.

The US Dollar (USD) remains subdued despite Monday’s brief support from higher Treasury yields and a temporary rise in risk aversion following the earthquake in Japan. The US Dollar Index (DXY) continues to hover near six-week lows, with investors awaiting the tone of the policy statement, potential updates to the dot plot and the remarks from Federal Reserve Chair Jerome Powell to assess the trajectory of the easing cycle.

Today’s labour market releases offered mixed signals. According to Automatic Data Processing (ADP), private-sector employment increased by an average of 4,750 jobs per week over the four weeks ending November 15. Meanwhile, the Job Openings and Labor Turnover Survey (JOLTS) reported a slight rise in vacancies to 7.67 million in October. Hiring and separations remained broadly unchanged.

However, these figures follow a worrying sequence of recent labour indicators that have highlighted moderating momentum in employment. Against this backdrop, today’s data were not strong enough to reassure investors about the underlying health of the US labour market. Instead, they suggest stability rather than renewed strength.

This encourages the view that Jerome Powell may adopt a firm tone on Wednesday in an attempt to curb expectations of an aggressive easing path. Nonetheless, divisions within the Federal Open Market Committee (FOMC), coupled with speculation that the Fed Chair could be replaced in May by a more dovish Chair, continue to fuel expectations of additional rate cuts next year.

In the Eurozone, Monday’s improvement in the Sentix Investors Sentiment Index brought little support to the Euro (EUR), and recent comments from ECB officials Isabel Schnabel and Martins Kazaks underline a cautious approach. While further tightening is not ruled out, the European Central Bank (ECB) appears inclined to proceed pragmatically given limited visibility on economic conditions.

Overall, EUR/USD remains in a holding pattern ahead of the Fed. Traders are reluctant to commit before receiving clearer guidance on the central bank’s rate path, with Wednesday’s communication from Jerome Powell likely to determine the next directional move for the pair.