Ahead of the Fed meeting in March, investors strayed from their expectations of two rate cuts in 2026. Not only did the Fed confirm this shift, but it also signaled that monetary policy easing may not occur anytime soon. Let’s discuss this topic and make a trading plan for the EUR/USD pair.
The article covers the following subjects:
Major Takeaways
- The Fed has adopted a hawkish tone.
- The ECB is unlikely to support the euro.
- Rising oil prices are boosting the US dollar.
- Short positions on the EUR/USD pair can be considered if the price breaks through 1.144.
Weekly US Dollar Fundamental Forecast
The key question is whether the Fed sees progress on inflation. If the central bank sees no progress, there will be no rate cuts. Jerome Powell’s remarks allowed the markets to confirm their own assessment: ahead of the FOMC meeting, the derivatives market was no longer confident in two rate cuts in 2026. After the Fed meeting, the odds of borrowing costs remaining at current levels jumped from 30% to 46%. Investors realized that buying the US dollar was the right decision.
Odds for Fed Rate Change
Source: Wall Street Journal.
As a rule, the US Federal Reserve aims to strike a balance between dovish and hawkish views. However, this time the balance tilted toward the hawks. Markets had expected around three FOMC members to support a rate cut, but in reality, only one did. Jerome Powell described the outlook for the US economy as uncertain amid the Middle East conflict, while emphasizing that inflation risks remain skewed to the upside. This was reinforced by an upward revision of the PCE inflation forecast for the end of 2026, from 2.4% to 2.7%.
Such messaging suggests that the Fed is more likely to keep rates on hold—or even consider further tightening—rather than move toward easing. Twelve out of 19 FOMC members still project at least one rate cut in 2026, but several officials have lowered their expectations, with one even anticipating higher borrowing costs in 2027.
Fed Funds Rate and FOMC Forecasts
Source: Wall Street Journal.
Another negative factor for the EUR/USD pair is Jerome Powell’s intention to remain as Fed Chair until Congress formally appoints a successor. This transition seems unlikely in the near future, given the ongoing investigation involving Powell.
A federal court’s rejection of the Justice Department’s subpoena has led to a political stalemate. Any appeal would further delay the process—and with it, the potential appointment of Kevin Warsh, who was seen as a proponent of rate cuts. As long as the Fed refrains from easing monetary policy, the US dollar is likely to remain well supported.
Meanwhile, the upcoming European Central Bank meeting is unlikely to bring significant changes. Despite the Governing Council’s determination to prevent a repeat of the 2022 inflation surge, the most probable outcome in March is a cautious, wait-and-see stance. The ECB needs time to assess the economic impact of the Middle East conflict. The energy-dependent eurozone economy may suffer far more than the US. As a result, the existing interest rate differential is likely to persist, providing the US dollar with a clear advantage over the euro.
Weekly EURUSD Trading Plan
In light of the surge in Brent prices above $110 per barrel, driven by attacks on energy infrastructure in Iran and Qatar, the recent drop in the EUR/USD rate seems well-founded. If the price slides below the 1.1440 support level, short positions can be opened, adding to those formed near 1.1540.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of EURUSD in real time mode
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