EUR/USD rallies back up to 1.0900s after Fed meeting

• EUR/USD rallies after a dovish hold by the Fed weakens the US Dollar. 
• The Fed continues to expect to make three 0.25% interest rate cuts in 2024, same as December. 
• Eurozone PMI data to give the latest assessment of the region’s economic well being. 

EUR/USD is trading back up in the 1.0900s on Thursday, after surging higher following the Federal Reserve (Fed) meeting. The US central bank maintained the policy status quo and slightly wrong-footed markets, which had been expecting a more hawkish shift in light of recent warmer-than-expected inflation.  

EUR/USD corrects course after Fed maintains status quo

The Fed left the Fed Funds Rate unchanged at 5.25%-5.50% as widely expected but in its accompanying forecast document, the Summary of Economic Projections (SEP), it continued to foresee rates falling to a median target of 4.6% in 2024, like it did in December. 

This is equivalent to expecting around three 25 bps (0.25%) of rate cuts this year, even though some market participants had speculated it might reduce the number of cuts to two because of stickier-than-expected inflation. 

It did, however, see less rate cuts in 2025, with the Fed Funds Rate falling to a median of only 3.9% rather than the 3.6% in the December SEP. 

The Fed revised up its GDP forecast substantially, to 2.1% for 2024, from 1.4% in December – regarded by many as indicative of a “soft landing”. 

The central bank’s preferred gauge of inflation, the Core Personal Consumption Expenditure (PCE) – Price Index, was revised up to 2.6% for 2024 from 2.4% in December. 

In his press conference after the meeting, Federal Reserve Chairman Jerome Powell sought to play down the latest batch of hot inflation readings, saying only two months of data was not enough to dissuade the Fed from its path. 

The overall interpretation was of a “dovish hold,” which resulted in the US Dollar selling off from overbought territory. The EUR/USD pair, which measures the buying power of a single Euro (EUR) in US Dollars (USD), rallied back up into familiar territory. 

European PMI data ahead

The next key release for the EUR/USD pair is the Eurozone March Purchasing Manager Indices (PMI) from ​​S&P Global and Hamburg Commercial Bank (HCOB), out at 10:00 GMT on Thursday. 

The flash estimate will provide the latest snapshot of economic health in the region. 

HCOB Composite PMI for the Eurozone is expected to show a rise to 49.7 in March from 49.2 in February, the Services PMI is forecast to come out at 50.5 from 50.2, and Manufacturing at 47.0 from 46.5 previously, 

A higher-than-expected result would likely be bullish for EUR/USD and vice versa for a lower-than-expected result. 

Technical Analysis: EUR/USD returns to the 1.0900s

EUR/USD reversed on a dime at around the level of the 200-day Simple Moving Average (SMA) in the 1.0830s and surged higher after the Fed meeting. It is now back up in the 1.0900s and seems to be trading in a range, with no real bias one way or another.

Euro versus US Dollar: 4-hour chart

The reversal at Wednesday’s lows continues to show momentum, however, and if price pushes higher it will probably meet resistance at the 1.0964 March 13 highs. If it breaks above them the March 8 highs for the month come into view at 1.0981. A break above them would turn the outlook bullish again. 

Alternatively, the up move could petter out and price could also fall back down to target the 50-day SMA in the 1.0840s followed by the 200-day again in the 1.0830s.