The euro and British pound resumed their decline against the US dollar following the release of the Federal Reserve meeting results; however, the drop was not significant, and the future direction of these instruments remains uncertain.
As reported, the US Federal Reserve left interest rates unchanged at 4.5%, fully in line with economists' forecasts. This decision, made against the backdrop of mixed economic data, highlights the Fed's cautious approach to monetary policy. On the one hand, inflation remains above the 2% target, requiring vigilance. On the other hand, signs of slowing economic growth may justify a more dovish policy stance.
In its accompanying statement, the Federal Open Market Committee (FOMC) emphasized that it would closely monitor incoming data and is prepared to adjust policy in response to economic outlooks. Special attention will be paid to inflation trends and the labor market situation.
Market reaction to the Fed's decision was muted. Investors appeared to have already priced in the decision to maintain interest rates. However, the path of future monetary policy remains a subject of debate, and the Fed's next moves will depend on how the economic situation evolves.
At the post-meeting press conference, Federal Reserve Chair Jerome Powell stated that policymakers are in no hurry to adjust interest rates, as the introduction of tariffs could lead to rising inflation and unemployment. "If the announced significant tariff increases remain in place, they will likely lead to higher inflation, slower economic growth, and rising unemployment," Powell said Wednesday at the conclusion of the two-day meeting in Washington. "However, the inflationary impact may be temporary, reflecting a one-time change in price levels," he added.
Against this backdrop, uncertainty about the economic outlook has increased further, along with the risks of higher unemployment and inflation. All of this could lead to even slower US economic growth in Q2 this year.
President Donald Trump's trade policy has created a wave of uncertainty in the economy. While negotiations on tariffs continue, economists generally expect broad tariffs to fuel inflation and dampen economic growth. This pits the Fed's two key objectives—price stability and maximum employment—against each other. With low unemployment and inflation still elevated, Fed officials have said they are prepared to keep rates steady as long as needed—until they understand where the economy is headed.
"We believe we're in the right place to wait and see how things develop," Powell said. "We don't feel the need to rush. We think it's appropriate to be patient."
However, as noted earlier, Trump has repeatedly stated that the central bank should already be cutting borrowing costs. Still, Powell made clear yesterday that the Fed would not make progress on its objectives this year if the Trump administration's tariffs are implemented.
Concerns about a potential recession have grown. Some companies have already reported pausing investment decisions due to the uncertainty. Nevertheless, the labor market remains resilient: employers added 177,000 jobs in April, which allowed Powell to describe labor market conditions as "strong." Economists note that it will take time for the full effects of the new tariffs to show up in the economy.
The Fed also confirmed it will continue to reduce its balance sheet at the slower pace announced in March. The monthly cap on Treasury securities that may roll off without reinvestment remains at $5 billion, while the cap on mortgage-backed securities also remains unchanged at $35 billion.
Technical Picture: EUR/USD Buyers now need to break through the 1.1340 level. Only this will allow a push toward testing 1.1380. From there, the next stop could be 1.1420, although achieving this without support from large players will be difficult. The most distant target is the 1.1450 high. If the instrument falls, significant buyer activity is only expected around 1.1305. If there is no interest at that level, it may be better to wait for a retest of the 1.1270 low or consider opening long positions from 1.1230.
Technical Picture: GBP/USD Pound buyers need to reclaim the nearest resistance at 1.3365. Only then can they aim for 1.3399, above which a breakout will be quite difficult. The ultimate target would be the 1.3437 level. In case of a decline, the bears will attempt to regain control of the 1.3285 level. If they succeed, a break of this range would deal a serious blow to the bulls and push GBP/USD down to the 1.3260 low, with a potential extension to 1.3235.
