The Fed's hawkish rate cut dampens euro bullish sentiment! Is there a hidden agenda behind the ECB's rate cut plan for this year?
2025-09-18 10:24:54
The euro reversed its trend against the dollar after the Federal Reserve announced a "hawkish 25 basis point rate cut". After hitting the annual high of 1.1918 in the previous trading day, the currency pair took profits and fell by 0.48%, retracing 100 points to the current price. It was traded around 1.1813 in the Asian session on Thursday (September 18).
The Fed acknowledged that downside risks to the labor market have intensified, noting that while the unemployment rate remains low, it has risen slightly.
The policy decision was not passed unanimously, with Governor Stephen Milan arguing for a larger 50 basis point rate cut, in line with some market expectations.
Regarding the inflation situation, the Federal Reserve said that price pressures have increased and remained high , while acknowledging that economic growth has slowed in the first half of 2025.
The latest Summary of Economic Projections (SEP) shows that decision makers expect to cut interest rates by another 50 basis points before the end of the year.
At a press conference, Powell stated that labor demand has weakened while inflation remains high . He noted that the balance of risks has "shifted" and emphasized that current monetary policy is responsive to economic changes, but acknowledged that the job market is "not solid." Regarding speculation of a larger rate cut, Powell explicitly denied that "broad support was not generated at this meeting," and emphasized that the Fed is in no rush to implement loose policy.
The latest inflation data from across the Atlantic reinforced the European Central Bank's decision to remain on hold and signaled the end of its interest rate hike cycle. Given that the interest rate differential between the US and Europe is likely to narrow sharply in the foreseeable future, the euro still has room to rise against the US dollar .
Currently, according to CME's "Fed Watch," the probability of the Fed keeping interest rates unchanged in October is 12.3%, and the probability of a 25 basis point rate cut is 87.7%. The probability of the Fed keeping interest rates unchanged in December is 1.1%, the probability of a cumulative 25 basis point rate cut is 19.0%, and the probability of a cumulative 50 basis point rate cut is 79.9%.
Traders have priced in a cumulative 125 basis points of rate cuts by December 2026, with expectations that rates will eventually fall to a range of 3% to 3.25%.
US economic data for August was mixed: housing starts plummeted 8.5% month-over-month (after a 3.4% increase in the previous month), falling from 1.429 million units to 1.307 million, the lowest level since May; building permits also fell 3.7%. Conversely, retail sales exceeded expectations, rising 0.6% month-over-month (after a 0.2% increase expected); and sales, the control group used in GDP calculations, rose 0.7% month-over-month (after a 0.5% increase in the previous month).
The Eurozone's harmonized CPI rose 2% year-on-year in August, below expectations and the previous reading of 2.1%. The core harmonized CPI remained in line with expectations at 2.3%. The US dollar index was at 97.06.
Fitch Ratings predicts that the Federal Reserve will cut interest rates only once in December and three more times in 2026. The agency also expects the European Central Bank to not further ease monetary policy.
EUR/USD could continue to consolidate within its bullish momentum as it retests the 1.1900 level. The Relative Strength Index (RSI) remains below overbought territory and significantly above its midline, supporting further upside.
On the upside, 1.1900 still constitutes a short-term resistance level. If it breaks through the 1.1900 level, the subsequent targets will be the 1.1950 and 1.2000 psychological levels.
On the downside, if it falls below the support level of 1.1800, it may fall to the area near this week's low of 1.1716 and the 20-day simple moving average (SMA, 1.1712), and the further downside target will be the low of 1.1573 in the past month.
(Euro/USD daily chart, source: Yihuitong)
At 10:10 Beijing time, the euro was trading at 1.1813/14 against the US dollar.
Powell released a cautious easing signal, and the euro fell from its annual high of 1.1918
The Fed acknowledged that downside risks to the labor market have intensified, noting that while the unemployment rate remains low, it has risen slightly.
The policy decision was not passed unanimously, with Governor Stephen Milan arguing for a larger 50 basis point rate cut, in line with some market expectations.
Regarding the inflation situation, the Federal Reserve said that price pressures have increased and remained high , while acknowledging that economic growth has slowed in the first half of 2025.
The latest Summary of Economic Projections (SEP) shows that decision makers expect to cut interest rates by another 50 basis points before the end of the year.
At a press conference, Powell stated that labor demand has weakened while inflation remains high . He noted that the balance of risks has "shifted" and emphasized that current monetary policy is responsive to economic changes, but acknowledged that the job market is "not solid." Regarding speculation of a larger rate cut, Powell explicitly denied that "broad support was not generated at this meeting," and emphasized that the Fed is in no rush to implement loose policy.
The latest inflation data from across the Atlantic reinforced the European Central Bank's decision to remain on hold and signaled the end of its interest rate hike cycle. Given that the interest rate differential between the US and Europe is likely to narrow sharply in the foreseeable future, the euro still has room to rise against the US dollar .
Despite the Fed's signal of further rate cuts, the euro still fell sharply
Currently, according to CME's "Fed Watch," the probability of the Fed keeping interest rates unchanged in October is 12.3%, and the probability of a 25 basis point rate cut is 87.7%. The probability of the Fed keeping interest rates unchanged in December is 1.1%, the probability of a cumulative 25 basis point rate cut is 19.0%, and the probability of a cumulative 50 basis point rate cut is 79.9%.
Traders have priced in a cumulative 125 basis points of rate cuts by December 2026, with expectations that rates will eventually fall to a range of 3% to 3.25%.
US economic data for August was mixed: housing starts plummeted 8.5% month-over-month (after a 3.4% increase in the previous month), falling from 1.429 million units to 1.307 million, the lowest level since May; building permits also fell 3.7%. Conversely, retail sales exceeded expectations, rising 0.6% month-over-month (after a 0.2% increase expected); and sales, the control group used in GDP calculations, rose 0.7% month-over-month (after a 0.5% increase in the previous month).
The Eurozone's harmonized CPI rose 2% year-on-year in August, below expectations and the previous reading of 2.1%. The core harmonized CPI remained in line with expectations at 2.3%. The US dollar index was at 97.06.
Fitch Ratings predicts that the Federal Reserve will cut interest rates only once in December and three more times in 2026. The agency also expects the European Central Bank to not further ease monetary policy.
EUR/USD hovers around 1.1810, but technicals remain bullish
EUR/USD could continue to consolidate within its bullish momentum as it retests the 1.1900 level. The Relative Strength Index (RSI) remains below overbought territory and significantly above its midline, supporting further upside.
On the upside, 1.1900 still constitutes a short-term resistance level. If it breaks through the 1.1900 level, the subsequent targets will be the 1.1950 and 1.2000 psychological levels.
On the downside, if it falls below the support level of 1.1800, it may fall to the area near this week's low of 1.1716 and the 20-day simple moving average (SMA, 1.1712), and the further downside target will be the low of 1.1573 in the past month.
(Euro/USD daily chart, source: Yihuitong)
At 10:10 Beijing time, the euro was trading at 1.1813/14 against the US dollar.
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