Forex analytics. The Dollar played Powell’s gambit – ForexNews.PRO
The US dollar has won the battle, but it will surely lose the war. The reason? An army of sheep led by a lion is stronger than an army of lions led by a sheep. Jerome Powell brilliantly rallied FOMC members, 11 out of 12 of them voted for a 25bp rate cut, but he is retiring in 2026. He will be replaced by Donald Trump’s man. The same as the only dissident in September, Stephen Miran. This means that the “bulls” on EURUSD will definitely win back.
In gambits, a chess player gives up a pawn for the best position. Jerome Powell did this three times during his tenure at the Fed. He made a precautionary rate cut in order to bring the US economy to a soft landing. His efforts in 2019 were interrupted by the pandemic. In 2024, everything worked out – the labor market stabilized against the background of three acts of monetary expansion from September to December by 100 bps. And here is the third attempt.
The EURUSD’s reaction was nervous. The main currency pair soared above 1.19 after the publication of the updated FOMC rate forecast. Officials see two more cuts in 2025, which is fully in line with market expectations. Before the meeting, derivatives gave a 70% probability of such an outcome. After that, the odds were raised above 90%.
As a result, the world-old principle of “buy a rumor, sell a fact” worked out. Profit-taking on EURUSD longs lowered the quotes. The acceleration of the fall of the main currency pair was given by the fact that there was only one dissenter who voted for a 50bp rate cut instead of the expected three, as well as the rhetoric of Jerome Powell.
The Fed chairman basically said that everyone already knew. That the central bank is shifting its attention from inflation to the labor market amid the cooling of the latter. The central bank considers the acceleration of inflation due to tariffs to be a temporary phenomenon. However, there were also novelties. Jerome Powell said that the current rate cut can be perceived as a reduction in risk management. High cost of borrowing is a hedge against inflation. The decrease in this hedge indicates that the process will be gradual.
The FOMC split also played a role in the EURUSD’s decline. Seven members of ni see cuts in 2025, two – only one. There is a risk that the Fed will stop earlier than the market, which sees rates at 3%, would like. All the better for the US dollar.
His victory is the defeat of Donald Trump. However, it is quite possible that Christopher Waller and Michelle Bowman joined the majority in order not to lose their credibility. And the example of Stephen Miran shows what will happen when there are more people of the US president in the FOMC. The federal funds rate will fall and the EURUSD will rise. The current pullback is a great buying opportunity if the euro returns above $1.1825 or rebounds from $1.1745.
