Insights 
VT 
The EUR/USD fell below 1.2000, experiencing a decline of over 0.60% following the Federal Reserve’s decision to keep interest rates steady. At present, the pair trades at 1.1955 as Fed Chair Jerome Powell maintained a neutral stance on monetary policy.
The Federal Reserve indicated patience with economic outlooks, noting stabilisation in the labour market and inflation concerns. Core PCE inflation is expected to reach closer to 3%, with price pressures anticipated to peak around mid-year.
Consumer Confidence And ECB Concerns
Consumer confidence in Germany improved, yet the European Central Bank expressed concerns over a weaker US Dollar’s potential impact on inflation. Meanwhile, the US Dollar Index rose by 0.55% to 96.34.
At the Federal Reserve policy meeting, interest rates remained unchanged at 3.50%–3.75%, with a split vote. Policymakers noted inflation remains “somewhat elevated” and economic uncertainty persists, guiding future decisions based on the dual mandate.
EUR/USD retreats from earlier highs, stabilising around 1.1950, with potential for further movement contingent on Federal Reserve actions. Decisions during the Fed’s eight annual policy meetings have significant implications for the US Dollar. Quantitative easing and tightening impact the currency’s value, affecting international attractiveness.
Looking back at this time in 2025, we saw the Federal Reserve’s firm stance push the EUR/USD below the 1.2000 level. Now, with the pair trading closer to 1.1500, the dynamic is shifting as the effects of last year’s monetary tightening are becoming clear. Recent reports show US inflation has finally dipped to 2.8%, its first reading below 3% in over eighteen months, supporting the view that the rate-hiking cycle is complete.
Shifting Monetary Policy Dynamics
Last year’s commentary showed a Fed focused on stabilizing labor conditions, but today the concern is a cooling market. With the Fed funds rate sitting at 4.25%, the conversation has pivoted towards the timing of the first rate cuts. The latest jobs report showed the unemployment rate ticking up to 4.1%, giving traders more reason to price in a policy change before the summer.
A year ago, European Central Bank officials were openly worried about a strong euro, but the dollar’s subsequent rally has flipped this concern. ECB policymakers now sound more hawkish than the Fed, as Eurozone core inflation remains stubbornly above their target. Derivative markets are pricing in 75 basis points of cuts from the Fed in 2026, compared to just 25 basis points from the ECB.
For the coming weeks, this growing policy divergence suggests positioning for potential euro strength against the dollar. We should consider using options to trade a move back towards the 1.1750 resistance level, perhaps through buying call options or establishing bull call spreads. Implied volatility will likely rise ahead of the next FOMC meeting, so establishing positions before then could prove beneficial.
