Home Daily Commentaries Dollar unmoved as Fed holds interest rates

Dollar unmoved as Fed holds interest rates

Daily Currency Update

The US Federal Reserve held interest rates at 4.5% at last night's policy decision in a move that was widely predicted. Fed Chairman, Jay Powell, said that members of the bank's Federal Open Market Committee, "do not need to be in a hurry to adjust our policy stance" words that flew in the face of comments from Donald Trump who earlier in the week who said rates needed to come down quickly.

The number of rate cuts expected in 2025 has halved since Trump was elected with two 25bp cuts priced in by year end. This contrasts with the Bank of England who are predicted to cut three times, and the European Central Bank who are expected to start their 2025 cutting cycle this afternoon with a total of four predicted over the next 12 months.

The Fed rate decision resulted in some dollar volatility in the immediate aftermath, however, after an hour EUR/USD was back to where it had been just before the decision around 1.0420. It remains around this level now. GBP/USD has mirrored the move and is back where it was before the announcement at 1.2450. The disparity between the three central bank's policy outlooks and the prospect of trade tariffs being implemented by Trump mean the dollar will likely be well supported for the foreseeable.

Key Movers

Today's big event is the European Central Bank's interest rate decision at lunchtime with a 25bp cut all but guaranteed to be unveiled. Comments from ECB chief, Christine Lagarde in the press conference after will be the key area of interest. With the eurozone's largest economy, Germany in recession and its second largest, France seeing growth contract at the end of 2024, there are many domestic headwinds for the bloc. Add the potential for exports to the US to be hit with 10/20% in extra changes, it is hard to be optimistic about its economic outlook. That said, there is a lot of bad news priced into the euro so any unexpected upbeat comments from Lagarde will see a rally, however most see the medium/long term direction being lower for the shared currency.

From the UK Chancellor of the Exchequer, Rachel Reeves, confirmed the government was backing a third runway at Heathrow. The aim is to get planning approval before the end of the current parliament in 2029 with the project likely to create tens of thousands of jobs and create much needed growth for the UK economy.

Expected Ranges

  • GBP/USD: 1.2375 - 1.2520 ▲
  • GBP/EUR: 1.1900 - 1.2015 ▲
  • GBP/AUD: 1.9920 - 2.0080 ▲
  • EUR/USD: 1.0310 - 1.0495 ▼

Written by

Jake Trask

OFXpert

As a Senior Corporate Client Manager, Jake and his team manage a diverse portfolio of 250 businesses to meet their varied foreign exchange needs. He enjoys untangling the complexities of foreign exchange dynamics, constantly striving to provide clients with the most informed insights and strategies to navigate these fluctuations successfully.