EUR/USD halts Wednesday rally after Fed shifts away from rate cuts, Fiber falls from 1.0850

EUR/USD pivoted away from 1.0850 on Wednesday after the Federal Reserve (Fed) held rates as markets broadly expected, but a shift in the Fed's "dot plot" of interest rate expectations is warning that interest rates are likely to continue holding higher for longer

Fed leaves policy rate unchanged at 5.25%-5.5% as forecast

The Fed's interest rate outlook sees higher rates than previously expected, with the 1-year rate outlook rising to 4.1% from the previous 3.9%. The 2-year rate outlook held steady at 3.1%, and the long-term interest rate outlook rose to 2.8% from 2.6%.

Live Coverage: Fed dot plot cools Gold, stocks, buoys US Dollar

According to the Fed's dot plot, only a single rate cut in 2024 is looking more likely. Four members of the Federal Open Market Committee (FOMC) see no rate cuts at all in 2024, with seven FOMC members expecting only a single quarter-point cut. Eight FOMC voters still see two cuts for the year, but the summary of FOMC rate expectations has shifted firmly back from previous forecasts.

Powell speech: More recent readings on inflation have shown easing

Fed Chair Jerome Powell noted in his prepared speech that despite labor and overall inflation readings moving into better balance, the Fed remains uneasy and has not developed sufficient confidence in inflation progress to lean towards rate cuts yet. Fed Chair Powell noted that "inflation has eased substantially but still remains too high".

EUR/USD rallied hard early Wednesday after US Consumer Price Index (CPI) inflation cooled faster than expected in May. The Fiber rose 1.10% to 1.0850 after May's US CPI eased to 0.0% MoM, down from the forecast 0.1% and easing further from the previous 0.3%.

EUR/USD technical outlook

EUR/USD has trimmed Wednesday's early rally back from an early peak near 1.0850, and the pair is waffling near 1.0825. The pair is still leaning firmly into the bullish side for the midweek market session, but crimped risk appetite has stalled further progress.

EUR/USD remains hampered by near-term congestion at the 200-day Exponential Moving Average (EMA) near 1.0790, and descending trendlines from the year's peaks near 1.1150.

EUR/USD hourly chart

EUR/USD daily chart