EUR/USD roils as Fed delivers caution-laden interest rate cut

EUR/USD caught a volatile bullish swing on Wednesday after the Federal Reserve (Fed) delivered a third straight interest rate cut. The Fiber pair tested its highest intraday bids in nearly a week before slumping back into the day’s midrange after a cooler-than-expected appearance from Fed Chair Jerome Powell.

Fed Chair Powell delivered a cautious press conference following the Fed’s rate call, noting that a third straight interest rate cut leaves the Fed in a “comfortable” position to play wait-and-see for further data before making any firmer decisions on rate moves moving forward. Despite a widening in the Fed’s dot plot of interest rate expectations, FOMC rate forecasts remain largely unchanged from the previous iteration, with the median policymaker expecting only a single rate cut in 2026 and a follow-up trim in 2027 before rates normalize near their long-term level around 3.0%.

The Federal Open Market Committee (FOMC) voted nine-to-three to deliver another quarter-point interest rate cut, with one policymaker preferring a 50 basis-point trim and two voters opting for no cuts at all. It is the first time since 2019 that at least three FOMC policymakers voiced outright opposition to an interest rate cut consensus since 2019.

EUR/USD 5-minute chart

Economic Indicator

Fed Interest Rate Decision

The Federal Reserve (Fed) deliberates on monetary policy and makes a decision on interest rates at eight pre-scheduled meetings per year. It has two mandates: to keep inflation at 2%, and to maintain full employment. Its main tool for achieving this is by setting interest rates – both at which it lends to banks and banks lend to each other. If it decides to hike rates, the US Dollar (USD) tends to strengthen as it attracts more foreign capital inflows. If it cuts rates, it tends to weaken the USD as capital drains out to countries offering higher returns. If rates are left unchanged, attention turns to the tone of the Federal Open Market Committee (FOMC) statement, and whether it is hawkish (expectant of higher future interest rates), or dovish (expectant of lower future rates).