Fed Rate Decision: Will Economic Uncertainty Hold Steady?
The US Federal Reserve (Fed) is set to announce its interest rate decision and release its policy statement following the July policy meeting on Wednesday. Market expectations strongly suggest the central bank will maintain its current policy settings for the fifth consecutive meeting, holding the interest rate steady in the 4.25%-4.50% range since last December's 25 basis points (bps) cut.
Rate Cut Outlook: Unlikely in the Short Term?
According to the CME FedWatch Tool, investors see virtually no chance of a rate cut in July. However, there's a 64% probability of a 25 bps reduction in September. This market sentiment creates a two-way risk for the US Dollar as the event approaches.
The Summary of Economic Projections (SEP) from June indicated that policymakers anticipate 50 bps of rate cuts in 2025, followed by 25 bps cuts in both 2026 and 2027.
Specifically:
- Seven of 19 Fed officials foresee no cuts in 2025.
- Two anticipate one cut.
- Eight project two cuts.
- Two forecast three cuts this year.
Post-June meeting, Fed Governors Christopher Waller and Michelle Bowman expressed openness to a July rate cut, citing contained inflation pressures and the need to act before labor market issues arise.
President Donald Trump has also pressured the Fed to cut rates, arguing that the US economy could perform better with lower rates.
"The FOMC is again widely expected to keep its policy stance unchanged next week, with the Committee maintaining rates at 4.25%-4.50%," noted analysts at TD Securities. "We expect Powell to repeat his patient, data-dependent policy stance while maintaining flexibility around the Committee’s next move in September. We believe two dissents, from Governors Bowman and Waller, are likely at this meeting."
Fed Announcement: Timing and Potential EUR/USD Impact
The Fed will announce its interest rate decision and monetary policy statement on Wednesday at 18:00 GMT, followed by Fed Chair Jerome Powell’s press conference at 18:30 GMT.
If Powell hints at a possible rate cut in September, particularly if trade uncertainties with partners like the European Union and Japan have eased, the USD could face renewed selling pressure.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a technical perspective for EUR/USD:
"The near-term technical outlook points to a buildup of bearish momentum. The Relative Strength Index (RSI) indicator on the daily chart stays below 50 and EUR/USD trades below the 50-day Simple Moving Average (SMA) for the first time since late February."
Conversely, the USD could strengthen if Powell emphasizes a patient approach to easing policy, pointing to persistent June inflation and a relatively strong labor market. This scenario might lead investors to delay pricing in a rate cut until further inflation and employment data are available.
"On the downside, 1.1440 (Fibonacci 23.6% retracement level of the February-July uptrend) aligns as the next support level ahead of 1.1340 (100-day SMA) and 1.1200 (Fibonacci 38.2% retracement). Looking north, resistance levels could be spotted at 1.1700 (20-day SMA), 1.1830 (end-point of the uptrend) and 1.1900 (static level, round level)," said Sengezer.