The EURUSD rally is in doubt as the market awaits the Federal Reserve’s interest rate decision.
The EURUSD rally has stalled at 1.15 and the 1.12 level is key support. A failure at that level could create a deeper correction.
The eur v usd will be in focus for the rest of the week as Eurozone retail sales at 5pm HKT are followed by the latest Fed interest rate move ahead of Thursday’s session.
The US central bank is likely to keep its key short-term interest rate unchanged on Wednesday, despite heavy criticism from President Donald Trump to reduce borrowing costs.
The President caused a sharp drop in financial markets two weeks ago by saying he could fire Fed Chair Jerome Powell, but he backed away from that claim. His Treasury Secretary Scott Bessent has also supported a Fed rate cut.
US policymakers argue that inflation has steadily cooled and high borrowing costs are no longer needed to restrain previous price increases. The Fed ramped up its short-term rate in 2022 and 2023 as post-lockdown pressures led to higher inflation. Turmoil in supply chains was worsened by the Ukraine and Russia conflict.
Despite those pressures receding, the Fed is expected to leave its key rate unchanged at 4.3% when it meets on Tuesday and Wednesday. Powell and many of the 18 officials that make up the Fed’s rate-setting committee have commented that they want to see how Trump’s tariffs affect the economy before making any moves.
Trump made further comments on Friday, saying on social media there is “NO INFLATION” and claimed that grocery and egg prices have fallen, while fuel prices have also fallen.
Vincent Reinhart, chief economist at BNY Mellon, said that the Fed is “scarred” by what happened in 2021, when prices rose due to supply issues and Fed officials said the increase would likely be “transitory.” Instead, inflation soared to a peak of 9.1% in June 2022 and Trump’s new administration has referred to the Fed as “Team Transitory”.
“That’s a Fed that is going to have to wait for evidence and be slow to adjust on that evidence,” Reinhart said.
“You could imagine a world where there isn’t pressure from the Trump administration and they cut rates…sooner, because they feel comfortable making the argument that they’re doing so because of the data,” he said.
Traders will follow Powell’s comments closely and the EURUSD will have its trend set out by the decision. Stubbornness to cut rates could see a drop in the pair.
