Insights 
VT 
The EUR/USD was unstable after the Federal Reserve reduced rates to 3.75%-4%, revealing differing opinions within the Committee, with one member favouring a larger cut and another preferring no change. Traders are focused on Fed Chair Jerome Powell’s upcoming conference for potential market direction insights.
The pair fluctuated between 1.1650 and 1.1635 following the anticipated 25 basis point cut. The market awaits Powell’s tone, with dovish remarks possibly boosting EUR/USD, while hawkish comments could cause a decline.
Federal Reserve’s Decision Making
The rate cut was approved by the majority of the Committee, though dissent occurred, with calls for a 50 bps cut and some preferring unchanged rates. The Federal Reserve commented on moderate economic expansion and rising inflation and plans to end balance sheet reductions by December.
EUR/USD remains steady near 1.1650, with key resistance at 1.1665 and support at 1.1618. The Fed uses rate adjustments to control inflation and employment, impacting the US Dollar’s strength.
The Fed holds eight policy meetings yearly to assess economic conditions. Quantitative Easing (QE) increases credit flow and weakens the Dollar, while Quantitative Tightening (QT) aims to strengthen it by reversing QE practices.
Traders Bracing for Market Volatility
With the Federal Reserve cutting rates to the 3.75%-4.00% range, we are now clearly in an easing cycle, but the path forward is uncertain. The dissent within the committee, with one member wanting a larger cut and another wanting to hold, signals significant internal debate. This division means we should expect continued volatility in the EUR/USD pair as the market digests future policy moves.
This rate cut was anticipated as we have seen key economic indicators soften over the past year. Looking back, we know US GDP growth slowed from the stronger pace of 2023 and 2024 to an annualized rate of just 1.5% in the last quarter, according to the Bureau of Economic Analysis. The unemployment rate has also drifted up to 4.2%, a noticeable increase from the sub-4% levels we saw persisting through early 2025.
The Fed’s caution is understandable given that inflation, while down from its peak, remains stubborn. The latest Core PCE reading for September 2025 ticked up slightly to 2.8%, justifying why the committee opted for a smaller 25 basis point cut instead of a more aggressive move. This stickiness in inflation will likely keep the Fed from signaling a rapid series of cuts, creating choppy, two-way price action for traders.
Given the immediate uncertainty surrounding Powell’s tone, traders should prepare for a spike in volatility. We are already seeing one-week implied volatility for EUR/USD options rise toward 8.5% ahead of the press conference. Strategies that can profit from a sharp move in either direction, such as buying straddles, could be effective in navigating the near-term reaction.
Looking further ahead, the most important long-term signal is the announced end of Quantitative Tightening (QT) effective December 1st. The termination of the Fed’s balance sheet runoff removes a major pillar of support for the US dollar that has been in place since the tightening cycle began back in 2022. This fundamental shift suggests a medium-term bearish outlook for the dollar, favoring a gradual move higher in EUR/USD into 2026.
This dollar weakness is further supported by policy divergence with the European Central Bank. The ECB has held its own policy rate at 3.0% for the last two meetings, showing less urgency to ease than the Fed. This relative hawkishness from Europe provides another reason for us to consider buying EUR/USD on any significant dips, especially if Powell’s comments trigger a short-term dollar rally.
