EUR/USD pulls back below 1.2000 ahead of Fed rate call

• EUR/USD edges lower as the Greenback stages a rebound ahead of the Fed interest rate decision.
• Markets await Chair Powell’s guidance as expectations remain centered on two rate cuts later this year.
• ECB officials flag risks from Euro strength and its impact on monetary policy.

The Euro (EUR) edges lower against the US Dollar (USD) on Wednesday as the Greenback attempts a modest rebound ahead of the Federal Reserve’s interest rate decision due at 19:00 GMT. At the time of writing, EUR/USD is trading around 1.1935, easing after briefly climbing above the 1.2000 mark, its highest level since June 2021.

The Greenback found some support after remarks from US officials helped calm markets following a sharp bout of Dollar selling. US Treasury Secretary Scott Bessent reaffirmed that the United States continues to pursue a “strong dollar” policy, adding that Washington is “absolutely not” intervening in USD/JPY at present.

The remarks followed comments from US President Donald Trump on Tuesday, who downplayed the recent slide in the US Dollar, saying the currency should “just seek its own level, which is the fair thing to do.”

On the monetary policy front, the Fed is widely expected to keep interest rates unchanged in the 3.75%-3.50% range, after delivering three consecutive 25-basis-point (bps) cuts last year as downside risks to the labor market increased.

Since the December meeting, US labor market data have remained broadly resilient, while inflation has continued to moderate, though it remains above the Fed’s 2% target.

This backdrop leaves policymakers in wait-and-see mode, with markets looking to Chair Jerome Powell for guidance on the timing and pace of any further easing, as expectations remain centered around two rate cuts later this year.

Meanwhile, attention is also focused on Fed leadership. President Donald Trump is expected to announce his pick for the next Fed Chair, though the timing remains uncertain. Potential candidates reportedly include BlackRock’s Chief Bond Investment Manager Rick Rieder, current Fed Governor Christopher Waller and former Fed Governor Kevin Warsh.

Markets remain wary that Trump’s choice could steer the central bank toward a more dovish policy path, following his repeated criticism of Chair Powell for not cutting interest rates more aggressively.

Elsewhere, the Euro’s recent appreciation has also drawn attention from European Central Bank (ECB) officials. ECB Governing Council member François Villeroy de Galhau said the central bank is “closely monitoring this appreciation of the euro and its possible consequences in terms of lower inflation,” adding that it is “one of the factors that will guide our monetary policy and our decisions on interest rates over the coming months.”