EUR/USD Below 1.0400 as Fed’s Hawkish Tone Sends USD Higher

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The EUR/USD pair drops to around 1.0370 during Thursday's Asian trading session, as the US Dollar strengthens following the hawkish rate cut by the US Federal Reserve (Fed). This pushes the major pair lower. Later today, the US will release data on weekly Initial Jobless Claims, Existing Home Sales, and the final reading of GDP for Q3.

As anticipated, the Fed implemented a hawkish 25 basis point (bps) rate cut at its December meeting on Wednesday, lowering its benchmark lending rate to a range of 4.25%-4.50%, the lowest in two years. The Fed’s 'dot-plot' revealed only two rate cuts in 2025, down from four projected in September.

During the press conference, Fed Chair Jerome Powell emphasized that the central bank will take a cautious approach to further rate cuts due to inflation remaining above the 2% target. This expectation of slower rate cuts next year is lending support to the US Dollar against the Euro.

Meanwhile, investors are anticipating that the European Central Bank (ECB) will continue cutting rates at every meeting through June 2025, as policymakers are concerned about escalating economic risks in the Eurozone. These expectations of aggressive rate reductions by the ECB are likely to keep the Euro under pressure.

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