At the May meeting, the Federal Reserve kept its benchmark interest rate unchanged at 4.25%–4.50%, as widely expected by the market. This marks the third straight meeting with no change to rates. The Fed also maintained a similar policy stance compared to previous meetings, showing a cautious and steady approach.
Fed Stance: Data Dependent and Cautious on Tariffs Risk
The Fed reiterated its cautious policy stance, emphasizing a data-dependent approach as it monitors the economic impact of ongoing US-China trade tensions and recent tariff hikes. The Committee highlighted the need to assess how these trade developments might influence inflation and employment trends.
Policymakers also pointed to rising risks, including the potential for higher inflation and weaker job growth due to trade uncertainties. The decision to keep rates unchanged was unanimous among all FOMC members.
In his post-meeting press conference, Fed Chair Jerome Powell echoed this cautious tone. He warned that sustained high tariffs could lead to elevated inflation, slower economic growth, and a potential rise in unemployment.
While current economic indicators remain solid, Powell acknowledged that the full impact of recent trade policies is still uncertain, requiring a cautious approach going forward.
What to Watch Next?
Given the Fed’s emphasis on economic data, upcoming inflation and job reports will be crucial in shaping expectations for rate adjustments. Investors should closely monitor the upcoming data, particularly the inflation and jobs report for coming months. Any deviation from expectations could quickly shift rate outlooks.
Nevertheless, the ongoing trade talks between China and US remain the focus as well.
According to the CME FedWatch Tool, the probability of the Fed keeping rates unchanged in June rose to 80% following the meeting. Meanwhile, the likelihood of a rate cut in July edged up slightly to 55.9%.
However, markets have now pushed back expectations for the first rate cut, which was previously anticipated to happen as early as June.
Market Reaction & Technical Outlook
The US Dollar remained largely unmoved following the widely expected Fed decision. DXY continues to consolidate within the 99–100 range, as traders stay cautious and watch for a potential breakout in the near term. The market now awaits fresh catalysts that could drive the next directional move.
EURUSD: Holds Near Multi-Year High, Awaits Breakout
The outlook for EURUSD is closely tied to the movement of the US Dollar Index. Currently, EURUSD remains in a range-bound consolidation near its multi-year high.
From a technical perspective, a breakout above 1.1400 could signal a continuation of the bullish trend, while a break below 1.1280 may point to a potential bearish reversal. However, for now, the US Dollar lacks strong bullish drivers, which keeps downside pressure on EURUSD limited.
GBPUSD: Bearish Reversal Ahead?
GBPUSD continues to trade in a range between 1.3400 and 1.3270, with a possible triple top or head-and-shoulders pattern forming—both hinting at a potential reversal setup.
The pair remains range-bound, and like EURUSD, the US Dollar still lacks a strong bullish catalyst to push a clear reversal. Market focus is now on the BoE meeting later today—if the Bank of England delivers a dovish rate cut, it could trigger a downside break.
From a technical view, a confirmed breakdown below 1.3270 would suggest a bearish move. However, if the BoE maintains a hawkish tone, GBP may still find upside support.