Euro sticks to losses near one-month low as USD bulls retain control ahead of Fed decision
- EUR/USD remains under some selling pressure for the fifth straight day amid a bullish US Dollar.
- Fed rate hike bets, surging US bond yields, and geopolitical risks underpin the safe-haven buck.
- The ECB’s hawkish outlook could lend some support to the Euro ahead of the FOMC decision.
The EUR/USD pair sticks to a negative bias for the fifth straight day and trades around the 1.1535-1.1530 area during the Asian session on Wednesday. Spot prices remain close to a one-month trough, touched on Monday, as traders now look forward to the highly anticipated FOMC decision for a fresh impetus.
The US Federal Reserve (Fed) concludes its September policy meeting today and is widely expected to raise interest rates by 25 basis points (bps). The market focus will also be on updated economic projections, which, along with Fed Chair Kevin Warsh's remarks during the post-meeting press conference, will be scrutinized for more cues about the rate path in coming months. The outlook, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and drive the EUR/USD pair.
Heading into the key central bank event, inflation risks stemming from rising energy prices underpin prospects for further policy tightening by the Fed. In fact, crude oil prices shot to a fresh high since May 20 on Tuesday amid growing concerns about supply disruption in the Middle East. Adding to this, a surge in public and corporate borrowing lifted the yield on the benchmark 10-year US Treasury bond to its highest level since April 2007, underpinning the USD and exerting pressure on the EUR/USD pair.
Apart from this, escalating US-Iran tensions further benefit the safe-haven buck and help the USD Index (DXY), which tracks the Greenback against a basket of currencies, stand firm near a two-week top. However, the European Central Bank's (ECB) hawkish outlook offers some support to the Euro and limits losses for the EUR/USD pair. Nevertheless, the aforementioned fundamental backdrop suggests that any attempted intraday recovery move could get sold into and is more likely to remain capped.
EUR/USD daily chart
Technical Analysis
The EUR/USD pair holds just above the 50.0% Fibonacci retracement at 1.1533 but remains capped by the 100-day Simple Moving Average (SMA) at 1.1554, keeping the near-term tone mildly bearish. A break there would expose deeper supports at the 61.8% level at 1.1491, 1.1431 and 1.1355, where prior retracement levels cluster.
On the topside, initial resistance is seen at the 100-day SMA at 1.1554, followed by the 38.2% Fibo. retracement at 1.1575 and then the 23.6% retracement at 1.1627, with the recent cycle high near 1.1712 acting as a more distant barrier.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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