EUR/USD continues to churn after cautious Fed disappoints markets

• EUR/USD remained stuck to the 1.1300 region on Wednesday.
• The Fed's rate hold was broadly expected, but an overly-cautious Powell caught markets by surprise.
• Investors are still holding out hope for a pivot toward rate cuts by July.

EUR/USD stuck to its middling ways on Wednesday, remaining entrenched near the 1.1300 handle after the Federal Reserve's (Fed) latest rate call went about as well as traders expected, albeit with a fresh batch of "wait-and-see" warnings from Fed Chair Jerome Powell. The economic calendar on the European side remains strictly mid-tier this week, leaving Fiber traders to sit and chew on a Fed that is turning increasingly cautious.

Fed's Powell: Right thing to do is await further clarity

The Fed's recent rate announcement highlights that while US employment and economic activity remain strong, concerns regarding labor and output risks have increased, primarily due to uncertainty related to tariffs and US trade policies. This apprehension among Fed officials about economic risks has raised market expectations for imminent rate cuts, temporarily pushing EUR/USD to higher levels.

However, market sentiment diminished after Fed Chair Jerome Powell's press briefing. He emphasized that if US trade tariffs remain, they will hinder the Fed's goals for inflation and employment for the rest of the year.

Chair Powell also warned that ongoing policy uncertainty is likely to lead the Fed to adopt a continued 'wait-and-see' stance on interest rates. Despite the significant negative impacts on consumer and business confidence caused by the Trump administration's tariff policies, the actual economic data has shown little adverse effect, complicating the Fed's rationale for any immediate interest rate adjustments.

According to the CME's FedWatch Tool, market participants are still anticipating a quarter-point rate cut in July. However, the probability of holding rates steady in July has increased to 30%, dampening widespread market expectations for a smooth transition into a new rate-cutting cycle.

EUR/USD price forecast

EUR/USD has found an interim bottom just above the 1.1200 handle, bolstering price action into the 1.1300 region. Fiber has eased from multi-month highs posted just north of 1.1500, but downside momentum remains limited as Euro traders await key market developments before pushing too hard in either direction.

EUR/USD daily chart