When is the Fed interest rate decision and how could it affect EUR/USD?

The Federal Reserve will announce its decision on monetary policy at 18:00 GMT.   Chairman Jerome Powell will read a statement and hold a press conference at 18:30 GMT. 

Key notes

The Federal Reserve is expected to lower the Fed Funds rate by 25 basis points to 1.50 - 1.75% range. It would be the third cut in-a-row. Some economists consider the central bank could remain on hold but markets appear to have fully priced in a rate cut. 

“A 25bp rate cut is currently priced in with more than 90% probability. Given that we expect the easing bias to be maintained, but without a pre-commitment to further reductions, the impact on the US treasury market should be limited”, explained Danske Bank analysts. They point out the focus will be on the statement and the press conference. 

At Nordea, they do not expect the Fed to cut its two other key rates by more than 25 bp (interest on excess reserves and the overnight reverse repo rate), both were cut by 30 bp in September. Regarding the voting, they consider the FOMC will most likely again be divided in its decision. “We expect both George and Rosengren to dissent wanting rates unchanged, while Bullard could favor a 50 bp rate cut.”

After the meeting, expectations about the path of monetary policy will likely change, increasing volatility across financial markets. If there is a cut, would it be the last one?  “The economic and political factors that led the Federal Reserve to begin its support action for the US economy have improved sufficiently to justify a pause in rate increases.  The Fed will pay only one more premium on its US economic insurance policy”, said Joseph Trevisani, Senior Analyst at FXStreet.

Implications for EUR/USD 

The impact across financial markets will likely depend on the decision and mostly about policy prospects for the next meeting and also for next year. The Greenback will likely rise sharply if the Fed remains on hold or if markets consider it was a “hawkish cut.” On the contrary, if the Fed delivers as expected and the FOMC explains it might have to keep cutting rates, the US Dollar could drop sharply. 

The EUR/USD awaits with a bullish short-term bias. The pair is recovering after last week's retreat from two-month highs. Today it remained above 1.1100 all day; it is rising for the third-day in-a-row. On the upside, resistance levels might be seen at 1.1140/50 but the key level is 1.1175/80: a close on top would point to further gains and a test of 1.1200. 

On the flip side, below 1.1100, the bearish pressure will likely intensify. The critical support level is the 1.1070/80 area that capped the decline last week. A break lower would clear the way to more losses, leaving the Euro vulnerable. 

About the interest rate decision 

With a pre-set regularity, a nation's Central Bank has an economic policy meeting, in which board members took different measures, the most relevant one, being the interest rate that it will charge on loans and advances to commercial banks. In the US, the Board of Governors of the Federal Reserve meets​ at intervals of five to eight weeks, in which they announce their latest decisions. A rate hike tends to boost the local currency. A rate cut tends to weaken the local currency. If rates remain unchanged (or the decision is largely discounted), attention turns to the tone of the FOMC statement, and whether the tone is hawkish, or dovish over future developments of inflation.

About the FOMC statement

Following the Fed's rate decision, the FOMC releases its statement regarding monetary policy. The statement may influence the volatility of USD and determine a short-term positive or negative trend. A hawkish view is considered as positive, or bullish for the USD, whereas a dovish view is considered as negative, or bearish.