The Federal Reserve decided to cut rates by 25 basis points and officially announced the end of quantitative tightening at yesterday’s FOMC meeting. The move was widely expected, and the initial market reaction was muted. However, what caught investors off guard was Powell’s unexpectedly hawkish tone. 

The decision came with two dissents: Miran favored a 50 bps cut, while Schmid preferred to hold rates steady. Schmid’s dissent appeared to strengthen Powell’s confidence in maintaining a cautious, hawkish stance. With this move, the Fed has now cut rates by a total of 50 basis points in 2025 and stands 150 basis points below the cycle peak. Powell highlighted this 150 bps adjustment and the growing uncertainty caused by limited data availability due to the US government shutdown. He stated that “high uncertainty could be an argument in favor of caution,” emphasizing that a December rate cut is “far from a foregone conclusion.” His comments challenged the market’s assumption of another cut in December. 

(2-Year Bond Yield) 

Following Powell’s remarks, the dollar and Treasury yields jumped, while precious metals such as gold and silver declined. Although the end of QT should, in theory, ease upward pressure on yields, Powell’s tone will likely dominate market sentiment in the short term. As a result, the market-implied probability of a December rate cut dropped to 75% from 95% before the meeting. 

EURUSD 

Today, the focus shifts to the euro side of the EURUSD pair. France and Germany reported better-than-expected GDP figures ahead of the ECB meeting. Eurozone GDP, released around the time of this analysis, is also expected to slightly exceed estimates. Despite the improving data, the ECB is likely to keep policy unchanged in this and the next few meetings. 

EURUSD has been in a correction phase since mid-September, with the 50-day and 100-day moving averages now acting as resistance. Whether this is a temporary correction nearing its end or the start of a deeper move below 1.15 remains uncertain, currently a 50-50 scenario. The ECB is in a wait-and-see mode, so the next move will likely come from the dollar side. A higher likelihood of the Fed holding rates in December could keep EURUSD under pressure, making Fed member speeches and US shutdown news key drivers in the days ahead.