The Euro (EUR) extended its decline against the US Dollar (USD) on Friday, with EUR/USD falling to a three-month low as the Greenback strengthened on the back of the Federal Reserve’s (Fed) hawkish tone. Despite the widely expected 25-basis-point rate cut earlier this week, markets interpreted the Fed’s accompanying message as cautious on further easing.
At the time of writing, EUR/USD trades near 1.1523, marking its third straight day of losses and positioning the pair for its first monthly decline in three months.
Meanwhile, the US Dollar Index (DXY), which measures the USD against a basket of six major currencies, hovers near three-month highs around 99.80 and is on track for a second consecutive monthly gain. The rally reflects cooling expectations for another rate cut before year-end.
Fed’s ‘hawkish cut’ highlights policy divergence
The Fed’s decision to lower the federal funds rate to a range of 3.75%–4.00% came in a 10–2 vote, matching market forecasts.
However, Chair Jerome Powell’s post-meeting remarks struck a hawkish tone, cautioning against assuming a December rate reduction. His comments signaled that policymakers see limited urgency for further cuts unless data show clear signs of softening economic momentum.
This stance sharply contrasts with the European Central Bank (ECB), which has held its benchmark rate steady for a third consecutive meeting.
The ECB noted that inflation is nearing its 2% medium-term target and that Eurozone growth remains resilient, supported by strong employment figures. The bank reiterated its commitment to a data-dependent, meeting-by-meeting approach without pre-committing to any rate path.
Fed officials reinforce cautious outlook
Fed policymakers reinforced the central bank’s cautious tone through fresh remarks on Friday. Atlanta Fed President Raphael Bostic described the Fed’s dual mandate as being “in tension,” explaining that while inflation has moderated, policy remains restrictive. He supported this week’s rate cut but cautioned against assuming an easing cycle is underway.
Cleveland Fed President Beth M. Hammack, one of the dissenting voices, said she would have preferred to keep rates unchanged, emphasizing that the Fed is “not on a preset course.” Both officials echoed Chair Powell’s view that a December rate move is “far from a foregone conclusion,” underscoring the Fed’s commitment to a data-driven approach as markets continue to reassess the monetary policy outlook.
