The US Federal Reserve (Fed) announced on Wednesday that it left the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% following the July policy meeting, in line with market expectations. The Fed noted that it is attentive to risks on both sides of its dual mandate and sees progress towards the 2% inflation goal. The economy continues to expand at a solid pace, although job gains have moderated and the unemployment rate has moved up slightly but remains low. The immediate market reaction to the Fed’s policy announcements saw the US Dollar Index edge slightly higher, with the index down 0.1% on the day at 104.35.
In the table showing the percentage change of the US Dollar against major currencies, the US Dollar was the weakest against the Japanese Yen. The heat map displays percentage changes of major currencies against each other, with different currencies seeing fluctuations in strength against one another. The US Federal Reserve is anticipated to keep interest rates unchanged at the upcoming monetary policy decision and markets are expecting a rate cut in September. Comments from Fed officials indicate growing confidence in nearing the 2% inflation target, leading to optimism about the economy in the second half of the year.
Chairman Powell’s press conference following the interest rate decision will be closely watched for any hints at the policy-easing strategy for the rest of the year. If Powell suggests multiple rate cuts in the last quarter of the year, it could boost risk sentiment and lead to renewed selling pressure on the US Dollar. However, if the Fed maintains a data-dependent approach and takes time to assess the impact of rate cuts before deciding on further reductions, the US Dollar could stage a rebound. The ‘Goldilocks’ US economic backdrop of solid growth and modest disinflation suggests the Fed may not cut rates as much as currently priced in, potentially leading to an appreciation in the currency over the longer term.
The technical outlook for EUR/USD suggests a key pivot area at 1.0790-1.0810, where moving averages align as support. Technical buyers could remain interested as long as this area holds, with resistance at the 20-day SMA at 1.0860 before the July 17 high at 1.0950. A fall below 1.0790-1.0810 could set 1.0700 and 1.0665 as bearish targets. Overall, the Fed’s policy decisions and Chairman Powell’s remarks will be closely monitored by market participants for clues on future rate cuts and their impact on currency markets.
