EUR/USD steady ahead of key Fed meeting

The euro is calm on Wednesday. EUR/USD is trading at 1.1125 in the North American session at the time of writing, up 0.11% today.

Fed poised to lower rates

The Federal Reserve meets later today and it’s looking like a coin toss as to whether the Fed will lower rates by 25 or 50 basis points. This is the Fed’s biggest interest rate call in years and there are strong arguments to support both scenarios. This will be the Fed’s first rate cut in over four years.

Beyond the burning issue of the extent of today’s rate cut, the markets will be keeping a close eye on the Fed’s ‘dot plot’, which will signal the expected rate path over the next few years as well as updated economic forecasts. The Fed is expected to be aggressive in its rate cuts, now that inflation is largely beaten and the employment picture has deteriorated.

Fed meetings are traditionally fairly predictable, as policy makers communicate their intentions ahead of time in order to minimize market volatility. That is not the case this time, as the Fed prepares to join other major central banks in a rate-cutting cycle. The Fed has maintained a stance of ‘higher for longer’ for over a year and has brought down inflation close to the 2% target. There are still upward risks of inflation but the labor market has deteriorated sharply in recent months, and a rate cut is clearly necessary.

The Fed would likely have preferred to kick off the new rate-cutting cycle with a modest 25 basis-point cut, but a 50-bps cut would provide a bigger boost to the economy and help consumers, who are struggling with high interest rates.

EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.1123. Above, there is resistance at 1.1136
• There is support at 1.1101 and 1.1089

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