18 Dec 2024

• The Federal Reserve is widely expected to lower the policy rate by 25 bps at the last meeting of 2024.
• Fed Chairman Powell’s remarks and the revised dot plot could provide important clues about the interest-rate outlook.
• The US Dollar’s valuation could be impacted significantly heading into the Christmas holiday. 
• The US Federal Reserve (Fed) is set to announce its monetary policy decisions following the December policy meeting on Wednesday. In conjunction with the policy statement, the US central bank will release the updated Summary of Economic Projections (SEP), commonly referred to as the dot plot.
  
  According to the CME FedWatch Tool, market participants are fully anticipating a 25 basis points reduction in the Fed's rate, which would adjust the policy rate to a range of 4.25%-4.5%. Market dynamics indicate that the reaction of the US Dollar (USD) to the interest rate decision may be temporary. Rather, investors are likely to focus on the specifics of the dot plot and closely analyze remarks from Fed Chairman Jerome Powell during the press conference that follows the meeting.
• The Summary of Economic Projections (SEP) released in September indicated that the median forecast among Federal Reserve officials for the federal funds rate at the conclusion of 2025 is 3.4%. Adjustments to expectations regarding interest rates, as well as inflation and growth forecasts for the upcoming year, may offer significant insights into the future policy direction and could impact the valuation of the U.S. dollar.
  
  As the Federal Reserve prepares for its final policy meeting of the year, analysts from TD Securities anticipate that "the FOMC is likely to announce an additional rate reduction, with the Committee expected to lower rates by 25 basis points to a range of 4.25%-4.50%." They further noted:
  
  "While we believe the Fed will continue to signal a willingness to implement further policy easing in 2025, we expect that the guidance concerning the pace of rate cuts will be approached with greater caution moving forward. This may be perceived by market participants as a hawkish interpretation of the rate cut."
• The US Federal Reserve is set to announce its interest rate decision and release the updated monetary policy, including the revised dot plot, on Wednesday at 19:00 GMT. This announcement will be succeeded by a press conference led by Fed Chairman Jerome Powell, commencing at 19:30 GMT.
  
  Should there be an upward adjustment to the interest rate forecast for the end of 2025, it may be interpreted as a hawkish shift in policy, potentially leading to a rally in the USD and a subsequent decline in the EUR/USD pair. Conversely, a downward adjustment could result in the opposite movement for the currency pair.
  
  During the press conference, Powell is expected to address whether the Federal Reserve considered the proposed policies of US President-elect Donald Trump, particularly those related to tariffs, when formulating their projections for the upcoming year.
  
  If Powell indicates a cautious approach to further policy easing due to the uncertainties surrounding potential tariffs and their impact on inflation, the USD may maintain its strength. However, if he minimizes concerns regarding inflation and emphasizes the commitment to sustaining a robust labor market in the coming year, this could convey a dovish stance, making it challenging for the USD to remain strong against other currencies. In such a case, a rebound in the EUR/USD pair could be anticipated in the short term.
• Eren Sengezer, the European Session Lead Analyst at FXStreet, presents a short-term technical analysis for EUR/USD:
  
  "The EUR/USD pair continues to exhibit a bearish trend in the short term, remaining confined within a descending regression channel that has been in place since late September. Furthermore, the Relative Strength Index (RSI) on the daily chart hovers around the 40 mark, indicating a notable absence of buying interest."
  
  "On the downside, the immediate support level is identified at 1.0400 (a static level), followed by 1.0260 (the lower boundary of the descending channel) and 1.0200 (another static, round level). Should EUR/USD manage to surpass 1.0600, which corresponds to the Fibonacci 23.6% retracement level of the downtrend observed from October to December, and establish this level as support, it may deter sellers. In such a case, the next resistance levels to watch would be 1.0690-1.0700 (the 50-day Simple Moving Average and the Fibonacci 38.2% retracement) and 1.0800 (the Fibonacci 50% retracement)."
  
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