EUR/USD holds near 1.1850 as traders await Fed decision, Powell press conference
- Euro trades at 1.1848 as markets brace for Fed rate decision and updated economic projections at 18:00 GMT.
- US President Trump appointee Miran may push 50 bps cut, while hawkish Fed presidents Schmid and Musalem could resist.
- ECB inflation outlook backs rate hold, suggesting narrowing policy gap with Fed could support EUR/USD further ahead.
The EUR/USD trades sideways on Wednesday as traders wait for the monetary policy decision by the Federal Reserve (Fed) and Chair Jerome Powell's press conference. At the time of writing, the pair trade sat 1.1848, down 0.15%.
Euro slips with Fed expected to deliver 25 bps cut
At 18:00 GMT the Fed is expected to reduce interest rates by at least 25 basis points after Powell acknowledged that downside risks to employment have risen. Although it seems that the majority of Fed officials agree with the Chair, some dissenters could emerge as Trump appointee Stephen Miran could strive for a larger cut, while hawks in the name of regional Fed presidents Schmid and Musalem, could opt to keep rates on hold.
Besides this, the US central bank is expected to update their economic projections, which includes the Fed “dot plot,” used by officials to express the fed funds rate path for the future. After that, traders focus shifts to the Powell press conference at 18:30 GMT.
Across the pond, the latest inflation figures have reinforced the European Central Bank’s (ECB) decision to hold rates unchanged at the latest meeting, while telegraphing that the easing cycle has come to an end. Hence, further EUR/USD upside is seen as the interest rate differential between the US and the Eurozone could shrink dramatically for the foreseeable future.
Daily market movers: EUR/USD holds firm amid dismal US data
- The Fed Summary of Economic Projections (SEP) is up next as it could dictate the path for the fed funds rate toward the end of the year and 2026. So far, traders have priced in close to 125 basis points of easing toward December 2026, projecting rates to end at around the 3%-3.25% range.
- The US economy showed mixed signals in August. Housing Starts tumbled 8.5% MoM, reversing July’s 5.2% gain, and fell to 1.307 million units from 1.428 million — the lowest level since May. Building Permits also declined, dropping 3.7%.
- Contrarily, Retail Sales outperformed forecasts, climbing 0.6% MoM versus expectations of 0.2% and above July’s 0.5%. The Control Group, which feeds into GDP calculations, rose 0.7% MoM after a 0.5% increase the prior month.
- The Eurozone docket featured the Harmonized Index of Consumer Prices (HICP) for August came at 2% YoY, below forecasts and July’s 2.1% print. Core HICP was aligned with estimates and unchanged from the previous reading of 2.3%.
- The US Dollar Index (DXY), which tracks the buck’s performance against a basket of six currencies, is up 0.08% at 96.73.
- Fitch Ratings projects the Fed will deliver two 25-basis-point rate cuts this year, one in September and another in December — followed by three additional reductions in 2026. In contrast, the agency does not anticipate further easing from the ECB.
Technical outlook: EUR/USD hoovers around 1.1850, awaiting Fed’s decision
EUR/USD consolidates with bullish momentum building as the pair approaches the 1.1900 mark. The Relative Strength Index (RSI) supports further upside, staying below overbought territory.
A break above 1.1900 would expose 1.1950 and the psychological 1.2000 level. On the downside, a move under 1.1850 would bring the prior yearly high of 1.1829 and 1.1800 into play, with further losses targeting 1.1750 and the 20-day SMA at 1.1704.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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