The EUR/USD exchange rate has been volatile since the Federal Reserve cut interest rates to 3.75%-4%. This decision revealed differences of opinion among Committee members: one wanted a bigger cut, while another wanted to keep rates the same. Traders are now paying close attention to Fed Chair Jerome Powell’s upcoming conference for clues about market direction. The EUR/USD fluctuated between 1.1650 and 1.1635 after the expected 25 basis point drop. Traders are eager to hear Powell’s comments. If he is dovish, it may help the EUR/USD rise, while hawkish remarks might cause it to fall.

Federal Reserve’s Decision Making

Most of the Committee supported the rate cut, but some disagreed—one member wanted a 50 bps cut, while others preferred to maintain the current rates. The Federal Reserve noted moderate economic growth and rising inflation, planning to stop balance sheet reductions by December. Currently, the EUR/USD is stable around 1.1650, facing resistance at 1.1665 and support at 1.1618. The Fed makes rate changes to manage inflation and employment, which influences the strength of the US Dollar. The Fed holds eight meetings each year to evaluate economic conditions. Quantitative Easing (QE) increases credit availability, weakening the Dollar, while Quantitative Tightening (QT) seeks to strengthen it by reversing QE strategies.

Traders Bracing for Market Volatility

With the Federal Reserve cutting rates to the 3.75%-4.00% range, we are clearly in an easing cycle, but the future remains uncertain. The disagreement within the committee—one member favoring a larger cut and another preferring to hold—indicates ongoing internal debate. This division suggests that the EUR/USD pair will likely experience more volatility as the market reacts to upcoming policy changes. We expected this cut due to recent softening in key economic indicators. For example, US GDP growth slowed from the strong rates seen in 2023 and 2024 to just 1.5% in the last quarter, according to the Bureau of Economic Analysis. The unemployment rate has also risen to 4.2%, up from the sub-4% levels that persisted through early 2025. The Fed’s caution makes sense, as inflation, although lower than its peak, is still a concern. The latest Core PCE reading for September 2025 rose slightly to 2.8%. This factor influenced the decision for a smaller 25 basis point cut instead of a more aggressive move. The ongoing inflation will likely prevent the Fed from indicating a series of rapid cuts, resulting in choppy price movements for traders. Given the uncertainty around Powell’s tone, traders should be ready for increased volatility. We are already noticing that one-week implied volatility for EUR/USD options is rising toward 8.5% as the press conference approaches. Strategies like buying straddles may be effective for navigating possible sharp price movements. Looking ahead, a key long-term signal is the announced end of Quantitative Tightening (QT) effective December 1st. This decision to halt the Fed’s balance sheet reduction removes a significant support for the US dollar, which has been in place since the tightening cycle began in 2022. This shift hints at a medium-term bearish outlook for the dollar, suggesting a gradual increase in EUR/USD through 2026. Dollar weakness is further supported by differing policies with the European Central Bank. The ECB has kept its policy rate at 3.0% for the last two meetings, showing less urgency to ease compared to the Fed. This comparative hawkishness from Europe gives us another reason to consider buying EUR/USD during significant dips, especially if Powell’s comments lead to a short-term strengthen in the dollar. Create your live VT Markets account and start trading now.

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