• The Federal Reserve is widely expected to cut interest rates following Donald Trump’s victory in the US presidential election.
• Fed Chair Powell’s comments could provide crucial clues about the interest rate outlook.
• The U.S. dollar’s rally could lose steam if the Fed leaves the door open to another rate cut in December.

The US Federal Reserve (Fed) will announce monetary policy decisions after its November policy meeting on Thursday, just two days after the election of Donald Trump as the 47th president of the United States. Market participants widely expect the U.S. central bank to cut its key interest rate by 25 basis points (bps) to a range of 4.5%-4.75%.

The CME FedWatch Tool shows that investors are fully pricing in a 25 basis point rate cut, while the probability of another rate cut in December is almost 70%. Market positioning suggests that the US dollar (USD) will be exposed to two-sided risks in the face of this event.

Donald Trump’s victory in the presidential election caused an augment in US Treasury bond yields on Wednesday and strengthened the dollar. Additionally, Republicans won a majority in the Senate and were on track to take control of the House, paving the way for faster policy implementation.

Assessing the election result, “Republican clean-up makes it much easier to implement a full political program. “The risk has tilted very strongly towards weakening economic growth in the US and globally and up for US inflation,” ABN Amro analysts said in a recently published report.

“While Fed policy could be tighter than our current baseline, the ECB could cut interest rates faster. The Republican coup sets the stage for a divergence in interest rates between the US and Europe. Parity for EUR/USD may be expected,” they added.

When will the Fed announce its interest rate decision and what impact may it have on EUR/USD?

The US Federal Reserve is scheduled to announce its interest rate decision and publish its monetary policy statement on Thursday at 19:00 GMT. This will be followed by a news conference from Fed Chairman Jerome Powell at 7:30 p.m. GMT.

A 25 basis point rate cut is unlikely to trigger a significant market reaction because the decision is already priced in. However, investors will be paying close attention to Chairman Powell’s comments at the post-meeting press conference, which could have a larger impact on the market.

If Powell leaves the door open to another 25 basis point rate cut in December, the immediate reaction could hurt the USD. Powell will certainly be asked about the potential impact of Trump’s proposed policies on the outlook for inflation and economic growth. The president will likely refrain from commenting on these issues and reiterate a data-driven approach to policymaking, regardless of the election winner.

If Powell expresses concerns about the potential impact of tariffs on inflation expectations, it could be read as a sign that the U.S. central bank may take time to further ease policy. In this scenario, the US dollar could extend its weekly rally and cause the EUR/USD rate to decline.

Nevertheless, it is too early for policymakers to assess potential changes in monetary policy following the policies proposed during the campaign period. In December, the Fed will release a revised Projection Summary that will likely provide more useful information about officials’ expectations for the economy under Trump.

Eren Sengezer, Chief Analyst for the European Session at FXStreet, presents the near-term technical outlook for EUR/USD:

“EUR/USD remains technically bearish after the acute decline seen on Wednesday. The Relative Strength Index (RSI) remains just above 30 on the daily chart, suggesting the pair has more room to lose before becoming technically oversold.

“On the other hand, static support appears to have formed at 1.0700 ahead of 1.0600 (April static level) and 1.0500 (October 2023 static level, round level). If EUR/USD gains recovery momentum following the Fed’s dovish tone, it could face strong resistance at 1.0870, where the 200-day Simple Moving Average (SMA) is located, technical buyers could take action as the pair converts this level into support . In this scenario, the next hurdle will be 100-day SMA coils 1.0940 before 1.1000 (static level, circular level).”