Powell: a moment of truth for the fed

EUR/GBP

Key zone: 0.8600 - 0.8650

Buy: 0.8660 (on a strong positive foundation); target 0.8750; StopLoss 0.8610

Sell: 0.8580 (following a decisive break above 0.8600) ; target 0.8450; StopLoss 0.8630

The United States dollar is losing ground against risk assets, including the euro and the British pound. Market participants expect to hear from the Federal Reserve a balanced and honest assessment of risks to the U.S. economy. The lack of clarity increases volatility and reduces the attractiveness of the dollar as a safe-haven asset.

In fact, the Federal Reserve will be forced to present a consolidated assessment of the consequences of the conflict in the Middle East. This position will be reflected not only in the text of the final statement but also in the updated dot plot.

Formally, the regulator’s decision is almost predetermined: the parameters of monetary policy will most likely remain unchanged. According to the CME FedWatch tool, the probability of such an outcome is estimated at 99%, and this scenario is already priced in.

Much greater importance will be attached to updated forecasts, the rhetoric of the regulator’s members, and especially the speech by Jerome Powell — it is these that are capable of setting the tone for markets and provoking noticeable movements, including in European currencies.

Key factors for the decision

• Inflation is showing resilience: the Consumer Price Index (CPI) in February remained at 2.4% y/y, while the core figure stood at 2.5%. At the same time, the core PCE index, which is a key benchmark for the Federal Reserve, accelerated to 3.1% y/y and has been rising for three consecutive months.
• The labor market is sending alarming signals. The February Nonfarm Payrolls (NFP) report turned out to be weak: the unemployment rate in the U.S. unexpectedly rose to 4.4%, while nonfarm employment decreased by 92 thousand — against expectations of an increase of 58 thousand. This is the worst result since autumn 2025.

Thus, the regulator finds itself between two risks — inflationary pressure and deterioration in the labor market.

Additional complexity is created by the structure of inflation. The main problem remains price growth in the services sector (excluding housing and energy), which is directly linked to wage dynamics. Moreover, the increase in the Producer Price Index (PPI) was recorded even before the escalation around Iran, which strengthens the arguments in favor of a tight policy.

The military conflict also increases the likelihood of inflation becoming entrenched through secondary effects, especially against the backdrop of already steady wage growth. These risks are likely to become the central topic of discussion at the FOMC meeting.

It is expected that the inflation forecast may be revised upward (to 2.2–2.4%), while the GDP growth forecast may be lowered to around 1.8%.

External factors should also be taken into account:

• In the near future, updated monetary policy guidance will be presented by the European Central Bank — investors will closely monitor signals regarding the future trajectory of rates.
• At the same time, regulators will inevitably discuss the impact of the Middle East conflict on both sides of their mandate — inflation and economic growth — as well as the risk that measures to support the economy may intensify price pressure.
• A decrease in geopolitical tension or even expectations of its stabilization, amid statements by Donald Trump, may support both the euro and the British pound.

Additionally, expectations of a softer policy by the Federal Reserve may increase the attractiveness of investments outside the United States.

Risk appetite increased on the eve after NATO countries refused to support Trump’s initiative to patrol the Strait of Hormuz until the official end of the conflict with Iran.

The reaction of Washington was tough: Trump expressed dissatisfaction, especially toward the United Kingdom, and threatened allies with new trade restrictions.

As a result, markets are entering the Fed meeting in a state of heightened uncertainty — and it is Jerome Powell, as the head of the Fed, who may for the last time articulate the future direction of both currencies and global financial flows.

So we act wisely and avoid unnecessary risks.

Profits to y’all!