The EUR/USD dropped more than 0.40% after Federal Reserve Chair Jerome Powell indicated that a rate cut in December is unlikely. Market expectations for a December cut fell from 85% to 62%, according to LSEG data.

US Dollar Influence

Powell noted divisions within the Federal Open Market Committee and mentioned that the policy rate may be close to neutral. Following his comments, the EUR/USD fell to 1.1577, a five-day low, before slightly rising above 1.1500. The US Dollar Index rose by 0.63% to 99.28, impacting the EUR/USD exchange rate. The focus is now on the European Central Bank’s upcoming monetary policy decision, with expectations that rates will remain steady. The Federal Reserve cut rates by 25 basis points to 3.75%-4%, though not everyone agreed with the decision. Traders are also monitoring developments in the US-China trade talks. Eurozone inflation, guided by the Harmonized Index of Consumer Prices, plays a key role in shaping the ECB’s interest rate decisions. The Euro is the second most traded currency worldwide, with economic data from the Eurozone affecting its value against the US Dollar. As of October 30, 2025, the market feels reminiscent of previous situations where the Federal Reserve made a so-called “hawkish cut,” resulting in strength for the dollar. With the latest US CPI data for September 2025 at 2.8%, the market is once again speculating whether the Fed will signal a pause or a move to easier policies at the December meeting.

Market Strategy and Volatility

A key takeaway from earlier periods is that the Fed’s commentary can carry more weight than its actions. In the past, a 25-basis-point cut was overshadowed by hawkish guidance, causing the EUR/USD to decline. Today, with the European Central Bank indicating it will keep rates steady despite Eurozone inflation at 3.1%, any sign of caution from the Fed could lead to a significant policy divergence and boost the dollar. For EUR/USD traders, positioning for dollar strength might be wise in the upcoming weeks. If the pair breaks below its recent support at 1.0800, it could quickly drop to August lows near 1.0650. Traders might consider buying put options on the EUR/USD to benefit from a potential decline while limiting risk. The uncertainty surrounding the Fed’s stance suggests increased volatility. In 2023, the bond market’s MOVE index surged due to policy uncertainty, and a similar situation may be developing. This makes strategies like buying option straddles on EUR/USD before the December FOMC meeting appealing, as they gain from significant price movements in either direction. Currently, derivatives markets, according to the CME FedWatch Tool, indicate about a 65% chance of a 25-basis-point cut in December, down from 80% a few weeks ago. This shift signals growing nervousness, similar to when expectations dropped from 85% to 62% right after the Fed’s announcement. Traders can use Fed Funds futures to wager directly on this outcome, suggesting the market might still be overly optimistic about a cut. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now