EUR/USD rallies as Fed holds rates, signals cautious stance

• EUR/USD climbs post-Fed, as policymakers keep rates unchanged but hint at a slower balance sheet runoff starting in April.
• Inflation remains "somewhat" elevated, with the Fed revising PCE and Core PCE higher, while GDP and unemployment estimates were lowered.
• Fed Governor Waller dissents, favoring an unchanged pace of balance sheet reduction, as markets digest mixed policy signals.

The EUR/USD rallied on Wednesday after the US Federal Reserve decided to keep interest rates unchanged despite adopting a slightly hawkish approach to the future path of interest rates. At the time of writing, the pair trades volatile within the 1.0860 - 1.0900 mark.

Pair trades volatile near 1.0860-1.0900 amid hawkish Fed outlook

In its monetary policy statement, the Fed commented that labor market conditions remain solid but emphasized that inflation remains "somewhat" elevated. The Committee mentioned that it would remain attentive to the risk of both dual mandates and will begin to reduce the pace of the balance sheet runoff in April.

The decision was unanimously approved, except for Fed Governor Christopher Waller, who favored keeping the balance sheet pace unchanged.

Regarding the Summary of Economic Projections (SEP), officials expect the fed funds rate to remain unchanged at 3.9% from December's SEP while upwardly reviewing expectations on PCE inflation and Core PCE. On the other hand, the Gross Domestic Product (GDP) and the Unemployment Rate were downwardly revised.

EUR/USD reaction to Fed's decision

The EUR/USD dropped to 1.0862, before resuming to the upside, reaching 1.0892, but meanders within that range. Traders await the Fed Chair Jerome Powell's press conference at 18:30 GMT.