EUR/USD hovered near 1.1670 after the Federal Reserve kept interest rates unchanged. The pair was down 0.48% on the day, with focus on Jerome Powell’s press conference at 18:30 GMT.
The Fed said the economy remains solid and the unemployment rate “has been little changed in recent months”. It said inflation is elevated, linked to high energy prices tied to the Iran war.
Fed Statement And Market Focus
The FOMC said Middle East developments are creating a high level of uncertainty for the economic outlook. It said it will weigh both parts of its mandate.
The decision featured an 8 to 4 split vote, with Governor Stephen Miran favouring a rate cut. Beth Hammack, Neel Kashkari and Lorie Logan voted against adding an easing bias to the statement.
EUR/USD fell below 1.1680 after the statement was seen as slightly hawkish. The reaction was linked to three members opposing an easing bias.
The Fed has two mandates: price stability and full employment, and it targets 2% inflation. It holds eight policy meetings a year, with 12 officials taking part in FOMC meetings.
Policy Tools And Volatility Outlook
Quantitative easing increases credit and often weakens the US Dollar, while quantitative tightening does the reverse and tends to support it. QE was used during the 2008 financial crisis.
The divided Federal Reserve vote signals significant uncertainty for the coming weeks, especially with a change in leadership. We should expect currency and interest rate volatility to rise as the market awaits clarity. This makes buying options, such as straddles on the EUR/USD, an attractive strategy to play the anticipated price swings.
The Fed’s cautious stance is understandable given that the latest Consumer Price Index for March 2026 was still elevated at 3.1%, well above the target. With the last jobs report showing a solid 250,000 positions added, there is little pressure on the central bank to cut rates. This environment supports a stronger US dollar, so we are looking at put options on the EUR/USD or short positions via futures.
Ongoing Middle East tensions continue to prop up energy prices, with Brent crude recently trading near $95 a barrel. This persistent inflationary pressure reinforces the position of the more hawkish members of the committee. We see this as a reason to consider call options on energy ETFs to hedge against further price shocks.
This situation feels similar to the pivot uncertainty we saw developing through 2025, where markets whipsawed on every piece of inflation data. The change in Fed leadership now adds a new layer of unpredictability not seen since the early days of the tightening cycle that began back in 2022. Therefore, keeping derivative positions nimble and well-hedged is more important than ever.
