EUR/USD slides to near 1.0830 as the US Dollar (USD) strengthens in North American trading hours on Thursday. The US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, jumps to near 104.00.
The major currency pair gains as the Federal Reserve (Fed) expressed no rush for monetary policy adjustments amid "unusually elevated" uncertainty on President Donald Trump's policies after leaving key borrowing rates unchanged in the range of 4.25%-4.50%, as expected, on Wednesday. "We are not going to be in any hurry to move on rate cuts," Fed Chair Jerome Powell said in the press conference. Fed officials also stuck to their guidance of two interest rate cuts this year as projected in the December policy meeting.
The Fed guided a muddy United States economic outlook under the leadership of President Donald Trump as "tariffs tend to bring growth down and inflation up." Powell said. The central bank revised their forecast for the core Personal Consumption Expenditures Price Index (PCE) for this year to 2.8%, up from the 2.5% projected in the December meeting. The central bank revised this year's Gross Domestic Product (GDP) growth lower to 1.7% from their previous forecast of 2.1% despite remaining confident that labor market conditions are solid.
Contrary to the Fed's "wait and see approach", US President Trump said that the central bank should have cut interest rates as the impact of tariffs is transiting into the economy. "The Fed would be much better off cutting rates as US tariffs start to transition (ease!) their way into the economy. Do the right thing," Trump said in a post on Truth Social after the Fed's policy decision. Trump has been advocating lower interest rates to ramp up economic growth.
On the economic data front, Initial Jobless Claims for the week ending March 14 have come in almost in line with estimates and the prior release at 223K.
EUR/USD declines sharply as the Euro (EUR) faces pressure after European Central Bank (ECB) President Christine Lagarde warned of Eurozone economic risks due to potential tariffs by the United States (US).
Lagarde testified before the Committee on Economic and Monetary Affairs of the European Parliament during European trading hours on Thursday. She said that US tariffs of 25% on imports from Europe, as threatened by US President Donald Trump, would lower "Euro area growth by about 0.3% in the first year", according to an ECB analysis. The study also shows that retaliatory tariffs from Europe would further increase this to about 0.5%.
Fears of soft Eurozone economic growth would dampen the Euro's (EUR) appeal as it will force the ECB to lower interest rates further. However, Germany's end to over a decade-long fiscal conservatism, aiming to boost domestic consumption and defense spending, would offset the impact of the trade war.
On the inflation outlook, Christine Lagarde forecasted that retaliatory measures from the European Union (EU) and a weaker Euro exchange rate could lift inflation by around 0.5%. However, the ECB President expects that to be temporary as the effect would ease in the medium term due to "lower economic activity dampening inflationary pressures".
Source: Fxstreet
