The Federal Reserve is expected to lower the policy rate after the victory of Donald Trump in the US presidential election. The market anticipates a 25 bps rate cut and there is a high probability of another rate reduction in December. This decision could impact the US Dollar, as it faces a two-way risk heading into the event. The Republican clean sweep in the election makes it easier to implement the full policy agenda, potentially leading to a US-European rates divergence and affecting the EUR/USD parity. ABN Amro analysts believe that a Republican sweep could tilt economic growth risks to the downside and increase inflation risks.
The US Federal Reserve is set to announce its interest rate decision on Thursday, with Fed Chairman Jerome Powell’s press conference to follow. While a 25 bps rate cut is already priced in, Powell’s comments during the press conference could potentially move the market. If he hints at another rate cut in December, the USD could be negatively affected. Powell is likely to remain data-dependent in his approach to policymaking and may not comment on the potential impact of proposed Trump policies on inflation and growth outlook. The Fed’s revised Summary of Projections in December could give more insight into the economic expectations under the new administration.
EUR/USD remains technically bearish, with room for more downside before becoming oversold. The pair could find support levels at 1.0700, 1.0600, and 1.0500, with resistance at 1.0870 and potentially at the 200-day Simple Moving Average. In case of a dovish Fed tone, technical buyers might step in, leading to resistance levels at 1.0940 and 1.1000. The outcome of the Fed’s interest rate decision and Powell’s remarks could impact the short-term movement of EUR/USD.
The US Dollar is the official currency of the United States of America and accounts for a significant portion of global foreign exchange turnover. The USD’s value is primarily impacted by monetary policy set by the Federal Reserve, which aims to achieve price stability and foster full employment. Interest rate adjustments and quantitative easing are tools used by the Fed to control inflation and stimulate economic growth. QE involves the Fed printing more Dollars to buy US government bonds, leading to a weaker USD. On the other hand, quantitative tightening is the process of reducing the Fed’s balance sheet by not reinvesting maturing bond proceeds, which can be positive for the US Dollar.
In conclusion, the US Federal Reserve’s upcoming interest rate decision and Chair Powell’s remarks could have implications for the US Dollar and EUR/USD. The market anticipates a 25 bps rate cut, with the possibility of another reduction in December. Powell’s comments during the press conference could provide important clues about future rate outlooks and potential impacts of proposed policies. Technical analysis suggests EUR/USD remains bearish in the short term, with support and resistance levels to watch. Understanding the factors that influence the US Dollar, such as monetary policy measures like QE and QT, is essential for gauging its value in the foreign exchange market. Investors and traders will closely monitor the Fed’s decisions and statements for potential trading opportunities in the USD and EUR/USD.
