EUR/USD and GBP/USD Surge as Fed Holds Rates Steady with Mixed Signals

The foreign exchange markets saw notable action on Wednesday as the U.S. Federal Reserve opted to keep interest rates unchanged, delivering a decision that blended steady policy with subtle shifts in outlook. The EUR/USD pair spiked following the announcement, reflecting a slightly hawkish tilt from policymakers, while the GBP/USD climbed after the Fed trimmed its growth projections amid policy uncertainty. Both currency pairs traded with volatility as investors digested the Fed’s latest stance and awaited Fed Chair Jerome Powell’s press conference, scheduled for 18:30 GMT.

For EUR/USD, the Fed’s decision to maintain rates at 4.5% came as expected, but the hint of a slower balance sheet runoff starting in April added a layer of intrigue. The pair oscillated between 1.0860 and 1.0900, down 0.49% on the day, after briefly dipping to 1.0862 and rebounding to 1.0892. The Fed noted that inflation remains “somewhat” elevated, revising its PCE and Core PCE inflation forecasts upward in the Summary of Economic Projections (SEP). Meanwhile, estimates for Gross Domestic Product (GDP) and the unemployment rate were adjusted lower, signaling a cautious economic outlook. Fed Governor Christopher Waller dissented, advocating for an unchanged pace of balance sheet reduction, which underscored the mixed signals emanating from the central bank. Despite solid labor market conditions, the Fed emphasized its dual mandate vigilance, keeping markets on edge.

On the GBP/USD front, the pair surged to an intraday high of 1.2985 after the Fed scrubbed its growth projections, reflecting concerns over economic uncertainty tied to the Trump administration’s erratic tariff policy announcements. The Fed slashed its 2025 GDP forecast to 1.7%, a sharp decline from December’s 2.1%, while long-run inflation expectations held steady at 3.0% and the fed funds rate projection remained pinned at 3.9%. The decision to slow the balance sheet runoff in April was broadly approved, though rate markets still see a diminishing chance of a quarter-point cut in June, with 42% of traders now anticipating no change. The Fed’s acknowledgment of hampered growth added fuel to the GBP/USD rally, as investors recalibrated their expectations.

As both currency pairs navigate the Fed’s latest moves, all eyes turn to Jerome Powell’s upcoming remarks. With EUR/USD hovering near 1.0860–1.0900 and GBP/USD testing higher ground, the Fed’s hawkish undertones and revised projections have set the stage for a dynamic market response. Traders remain poised for clarity on how the central bank will balance inflation risks, growth concerns, and its monetary policy path in the months ahead.