The current outlook from the Fed. As of June 13, 2024:
- The Fed has kept interest rates steady at 5.25% – 5.50%.
- Their projections (dot plot) indicate only one rate cut is likely before the end of 2024.
This stance reflects a cautious approach. While inflation has come down from its 2022 highs, it remains above the Fed’s 2% target, and they want to be sure price increases are under control before easing interest rates.
Here’s how this could affect EURUSD:
- Potential EURUSD Rise: If the market views this single rate cut as a dovish sign, it could weaken the USD and strengthen the EURUSD. This is because investors might see the Fed less committed to fighting inflation, making the dollar less attractive.
- Limited Impact: If the market already expected one rate cut, the actual decision might have a muted effect on EURUSD. The focus might shift to the Fed’s comments and the dot plot for clues about the future pace of rate cuts.
- EURUSD Weakening: An unexpected hawkish tilt from the Fed, suggesting they might hold rates steady or even consider increases, could strengthen the USD and weaken EURUSD.
Overall, the impact on EURUSD depends on how the market interprets the Fed’s decision and its implications for future rate cuts.