Rates on hold — crisis under control

EUR/GBP

Key zone: 0.8620 - 0.8680

Buy: 0.8700 (on a decisive break of 0.8670); target 0.8820; StopLoss 0.8650

Sell: 0.8630 (on strong negative fundamentals) ; target 0.8500; StopLoss 0.8680

Global regulators are shifting into a wait-and-see mode. Market participants are focusing not on the decisions themselves, but on rhetoric — прежде всего the tone of Powell’s latest speech as Fed Chair.

The US dollar is consolidating ahead of the Fed and ECB meetings amid relative calm in the Middle East. Key central banks, including the Bank of England, are not ready for active moves and prefer a cautious, wait-and-see strategy.

The Fed’s caution reflects a desire to assess the economic impact of the conflict. While the effects of the pandemic, the Ukraine crisis, and tariff policies were temporary, the PCE inflation metric has remained above the 2% target for an extended period, raising the risk of declining trust in the regulator.

An additional layer of uncertainty is Powell’s own future: whether he will remain on the FOMC through 2028 or leave after his current term. His departure could strengthen Trump’s position and bring forward a rate-cut cycle, while also making it easier for Kevin Warsh to reform the Fed.

Reminder:

The ECB’s historical experience enforces caution:

• in 2008 and 2011, rates were raised too aggressively and then cut just as quickly;
• in 2022, the regulator was late to tighten, resulting in double-digit inflation.

Today, the ECB is trying not to repeat those mistakes: maintaining a hawkish tone while avoiding rushed decisions. Any signals from Christine Lagarde regarding a potential June rate hike will be critical for EUR/USD — weak hints could push the pair lower.

Additional pressure on the euro comes from political and fiscal factors — discussions around a new €1.8 trillion EU budget for 2028–2034. Disagreements among member states are intensifying:

• donor countries demand spending cuts and stricter justification;
• Cyprus has become a focal point for escalating debates;
• the European Commission insists on increasing investment in climate, digitalization, and security;
• new EU levy mechanisms are being discussed to repay COVID-era debt.

In effect, the EU is facing a significant conflict of interests over how to distribute the financial burden.

The EUR/GBP pair has found support in the 0.8650–0.8655 zone, forming a potential double-bottom pattern. The euro is attempting to rise against the pound but remains range-bound.

Position rebalancing in key zones increases the likelihood of a trend shift, but monetary policy decisions remain the decisive factor.

Both the ECB and the Bank of England are likely to keep rates unchanged, waiting for additional data on how the Middle East conflict impacts inflation and growth.

Earlier, Andrew Bailey noted that current conditions — a weak labor market and limited pricing power of companies — do not require policy changes, which could give the euro a short-term advantage.

Central banks are synchronously moving into a pause mode, relying on data rather than action. In the near term, the market will react not to rate decisions but to signals about future policy direction.

Key drivers:

• Powell’s rhetoric and potential Fed leadership change;
• rate expectations in Europe;
• fiscal risks within the EU.

As long as uncertainty persists, FX markets remain in consolidation mode with heightened sensitivity to any signals from regulators.

So we act wisely and avoid unnecessary risks.

Profits to y’all!