EUR/USD collapses below 1.0400 as Fed eyes two cuts in 2025

• EUR/USD experiences sharp decline in response to the Federal Reserve's 25 basis point rate cut paired with a cautious outlook on future policy adjustments.
• Fed Chair Jerome Powell emphasizes a careful approach to further rate changes, noting persistent inflation risks, stable labor market.
• Fed's updated economic projections indicate only modest rate reductions in the coming years, setting the federal funds rate target at 3.4% by 2026.

The EUR/USD sank sharply after the Fed cut interest rates but also adopted a slightly hawkish stance, as the central bank estimates 100 basis points of easing toward the next two years. At the time of writing, the pair trades below 1.0400, volatile.

EUR/USD pair tumbles below 1.0400 as Fed Chair Jerome Powell speaks

In his press conference, Powell said that the central bank could be more cautious about considering additional adjustments, acknowledging that the policy is less restrictive. He added that risks and uncertainty around inflation are skewed to the upside and added that higher inflation is one of the reasons for the adjustment to the dot plot.

Jerome Powell added that it could take a year or two for inflation to get to the 2% goal, adding that the labor market is not cooling in a way that raises concerns.

The Federal Reserve cut rates by 25 basis points to the 4.25%-4.50% range, yet the decision was not unanimous, as Cleveland Fed President Beth Hammack voted to keep rates unchanged.

The statement changed little from the last meeting, though traders were focused on the Summary of Economic Projections (SEP).

The central bank's monetary policy statement revealed that economic activity continued to expand solidly and acknowledged the labor market conditions had eased. Despite the improvement in employment, Fed policymakers decided to keep the language of “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”

Meanwhile, the SEP showed that officials penciled just two rate cuts in 2025 and 2026, driving the fed funds rate to 3.4% in 24 months.

EUR/USD Reaction to Fed's Chair Powell press conference

The EUR/USD has plunged sharply, clearing the 1.0450 psychological level, extending its losses toward the day's lows at 1.0410. The pair would remain trading volatile, as Fed Chair Powell takes the stand. Immediate resistance is seen at the December 13 low of 1.0452, and support at 1.0400. If cleared, the next support would be the YTD low of 1.0331.