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EUR/USD steadies above 1.1100 on Fed large rate cut bets.

September 18, 2024

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EUR/USD holds gains above 1.1100 as the US Dollar remains under pressure ahead of the Fed’s policy decision at 18:00 GMT.
Traders seem more confident that the Fed will reduce interest rates by 50 basis points.
ECB’s Villeroy sees the policy-easing cycle continuing further.

EUR/USD holds gains above 1.1100 in Wednesday’s North American session ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT. The major currency pair gains as the US Dollar (USD) remains under pressure as the Fed is poised to deliver its first interest rate cut in more than four years.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, struggles to hold its recovery to near 101.00, a rebound fuelled by better-than-expected United States (US) monthly Retail Sales data for August.

The confidence of market participants that the Fed will start the policy-easing cycle aggressively has increased as officials said they remain concerned over a slowdown in job growth. Also, they are confident that inflation is declining towards the bank’s target of 2%.

According to the CME FedWatch tool, 30-day Federal Funds Futures pricing data shows that the probability of the central bank cutting rates by 50 basis points (bps) to 4.75%-5.00% is at 65%, while the rest favors a 25-bps rate cut.

In addition to the Fed’s decision itself, the US Dollar will also be influenced by the Fed’s dot plot, economic projections, and the press conference of Fed Chair Jerome Powell, which will provide fresh guidance on interest rates. The Fed’s dot plot indicates where policymakers see the federal fund rate heading in the medium and long term.