Insights 
VT 
EUR/USD hovered around the 1.1300 level after the Federal Reserve’s recent rate decision. Although the interest rate hold was anticipated, Fed Chair Powell’s cautious remarks surprised the market, with hopes for rate cuts by July.
The Fed noted strong US employment and economic activity but expressed concerns over labour and output risks due to tariffs and trade uncertainties. This cautious outlook temporarily boosted EUR/USD as expectations for rate cuts rose.
Fed’s Cautious Outlook
However, Powell stated that high tariffs hinder the Fed’s goals, suggesting it may maintain current rates. While tariffs have affected consumer and business sentiment, economic data has not shown substantial negative impacts, complicating immediate rate decisions.
Market expectations foresee a quarter-point rate cut in July, though the probability of stable rates has grown to 30%. EUR/USD appears to have interim support above 1.1200, awaiting market updates for strong directional moves.
The Euro is the Eurozone currency, second only to the US Dollar in global trades, constituting 31% of forex transactions in 2022. The European Central Bank influences its value through interest rates and monetary policy aimed at price stability.
Eurozone inflation is tracked by the Harmonized Index of Consumer Prices (HICP), with significant economic indicators including GDP, PMIs, and employment data impacting its value. The Trade Balance also affects the Euro, with positive balances bolstering and negative balances weakening the currency.
Rate Expectations and Market Reaction
What the existing content tells us is fairly clear: the EUR/USD exchange rate nudged closer to 1.1300, driven less by actual changes in policy and more by shifting expectations. The Federal Open Market Committee left rates on hold—which was widely predicted—but Powell’s tone threw much of the market off balance. His remarks had a cautious edge, which traders read as leaving the door open to lower rates in the near future. That, in turn, lifted EUR/USD somewhat, given that lower US interest rates tend to weigh on the dollar.
Although US economic data has been generally steady—strong employment numbers, solid output growth—the Fed remains wary of external pressures, particularly from new and proposed tariff measures. Powell flagged these as interfering with the committee’s ability to meet its economic goals. What’s interesting is that, while the actual macro indicators haven’t deteriorated meaningfully, the potential for damage might be priced into future expectations, particularly in how firms and consumers are feeling. That tension continues to blur the picture of what the Fed may do next.
Now, what matters for us is how rates are likely to move and what that means for price action. Futures markets currently predict a 25 basis point cut by July, but we have seen that conviction soften; implied probabilities show about 30% chance of no move. That puts us in a rhythm of watching high-frequency data releases inch by inch. Any unanticipated economic weakness in the US could nudge rate cut odds higher—supportive for EUR/USD. Conversely, stronger-than-expected prints would likely dampen that prospect and weigh on the pair.
From the European side, inflation remains a critical input. The Harmonised Index of Consumer Prices continues to guide ECB decisions, alongside PMIs and GDP prints. The central bank has room to adjust policy only if inflation deviates meaningfully from its current path. Employment and trade data also factor into assessments, but for now, there’s no indication that the ECB will act ahead of the Fed.
In terms of immediate levels, EUR/USD has held above 1.1200 in recent sessions. That’s become a short-term floor, at least until we get top-tier releases or monetary policy shifts. From our vantage point, option positioning appears trapped between growing uncertainty and established technical boundaries. Short-dated implied volatilities remain relatively tame, which adds to the sense of inertia in spot—though this calm can turn swiftly with sharper moves in US data or unexpected ECB commentary.
What we’re really watching for is any early signal—be it from a Fed speech or surprise inflation reading—that might flip the rate expectations narrative. Near-term price movement will likely remain bound until market conviction builds more decisively in one direction. Delta scalers should remain closely aligned to breakouts, as gamma exposure against well-defined strikes could be in play.
In the coming sessions, attention should be placed on whether rising speculative interest in the Euro, partly fuelled by less hawkish Fed pricing, is sustainable. We should assess how core flows adjust, particularly long-term corporate hedging and ex-US reserve diversification. Any pivot away from the dollar by these groups could reinforce directional EUR demand even absent policy change.
For now, direction is hesitating, but the structure of rates pricing and volatility positioning is shifting just beneath the surface. Traders should be alert to shifts in expectations even before the data confirms them. Sometimes moves begin in sentiment well ahead of the economic release.
