Introduction to the Federal Reserve’s Interest Rate Decision

The United States Federal Reserve (Fed) is set to announce its interest rate decision on Wednesday, with markets widely expecting the central bank to keep the policy rate unchanged in the range of 3.5%-3.75%. This decision is nearly fully priced in, and Fed Chair Jerome Powell’s comments in the post-meeting press conference could significantly impact the US Dollar’s (USD) performance. The CME FedWatch Tool shows that investors see about a 98% probability of a policy hold in January, and price in a 15% chance of a 25-basis-point (bps) rate cut in March.

Market Expectations and Analyst Insights

A recently conducted Reuters poll found that all 100 economists surveyed expect the Fed to hold the federal funds rate unchanged in January. Moreover, 58% of respondents forecast no rate changes during the first quarter, compared with December’s poll, when at least one cut by March was anticipated. TD Securities analysts agree that the Fed will keep rates on hold at the 3.50%-3.75% range, arguing that risk-management cuts are now over and the policy is closer to neutral. They note that while Powell is likely to sound noncommittal around near-term rate cuts, he will remind market participants that the median Fed official still looks for easing this year.

Federal Reserve’s Interest Rate Decision and Press Conference

The Fed is scheduled to announce its interest rate decision and publish the monetary policy statement at 19:00 GMT, followed by Fed Chair Jerome Powell’s press conference starting at 19:30 GMT. The rate decision itself is unlikely to trigger a significant market reaction, but Powell’s tone could influence the USD valuation and drive EUR/USD price action. In case Powell adopts an optimistic tone on the inflation outlook and emphasizes the need to support the labor market amid worsening conditions, investors could see this as a dovish sign, leading to a potential decline in the USD and an increase in EUR/USD.

Impact of the Fed’s Decision on the US Dollar and EUR/USD

Market participants will also pay close attention to headlines over the nomination of the next Fed chair, as US President Donald Trump could take the opportunity to criticize Powell and announce his nomination just before or after the Fed event, ramping up market volatility and clouding the market reaction. BlackRock’s chief bond investment manager, Rick Rieder, Fed Governor Christopher Waller, and former Fed Governor Kevin Warsh are the last three candidates in the race. Powell’s term as head of the Fed ends in May, but his term on the central bank runs through 2028. During the press conference, he is likely to be asked whether he intends to finish out his term.

Technical Outlook for EUR/USD

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD: “The Relative Strength Index (RSI) indicator keeps near overbought conditions on the daily chart, and EUR/USD holds firm above its 20-day and 100-day Simple Moving Averages (SMA), highlighting a bullish tilt in the short-term technical outlook. On the upside, 1.1918 (September high) aligns as the immediate resistance level ahead of 1.2000 (round level). On the flip side, 1.1821 (Friday’s close) could be seen as the first support level before 1.1760 (static level), followed by 1.1710 (20-day SMA). A daily close below the latter could open the door for a steeper slide toward the 1.1600 mark.”

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. The most important single factor impacting the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment.

Economic Indicators and the Federal Reserve

The Federal Reserve’s monetary policy decisions, including interest rate changes and quantitative easing (QE), significantly impact the US economy and the value of the USD. QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases.

FOMC Press Conference and Market Volatility

The FOMC press conference is about an hour long and has two parts. First, the Chair of the Federal Reserve (Fed) reads out a prepared statement, then the conference is open to questions from the press. The questions often lead to unscripted answers that create heavy market volatility. The Fed holds a press conference after all its eight yearly policy meetings. The next release is scheduled for Wed, Jan 28, 2026, at 19:30 GMT. For more information, visit the Federal Reserve’s website.

Smart Tip for Readers

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