EUR/USD jumps after Fed’s decision, breaks above 1.0850

• The Federal Reserve keeps rates steady as expected but hints at potential rate cuts next year.
• US Dollar tumbles on US yields decline sharply. 
• EUR/USD approaches the 20-day SMA. 

The EUR/USD pair jumped from 1.0785 to around 1.0850 following the Federal Reserve’s decision to keep interest rates unchanged. The US Dollar weakened across the board as US Treasury yields plummeted. 

Fed signals no more rate hikes

The Federal Reserve kept the key rate unchanged at the 5.25%-5.50% range, the highest level in 22 years, as widely expected. In the statement, the Fed recognized that inflation “eased” but “remains elevated”. 

According to the FOMC staff projections, there is an expectation of weaker economic growth compared to the September projections. Regarding interest rates, no policymakers foresee rates being higher by the end of 2024 than their current levels. Attention turns to Fed Chair Jerome Powell’s press conference. 

On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. No change is expected at the last meeting of the year. Markets will receive updated staff macroeconomic projections and will hear from ECB President Christine Lagarde.

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EUR/USD levels to watch 

If the upside momentum continues, the EUR/USD pair could test the 20-day Simple Moving Average (SMA) at 1.0870 and a daily close above it would strengthen the outlook for the Euro. On the flip side, immediate support is seen at 1.0810, followed by the 1.0770 area.