EUR/USD falls to 7-week low after Fed as Eurozone inflation slows

The EUR/USD currency pair hovered just above a fresh 7-week trough on Thursday, after Federal Reserve Chair Jerome Powell pushed back on the idea that an interest rate cut could come as early as March, which kept the dollar supported.

The Federal Reserve left its federal funds rate target range without change at a 23-year high of 5.25%-5.50% for a fourth straight policy meeting in January, in line with market consensus.

The Fed Chair said the central bank would continue to make decisions on a meeting by meeting basis, while a rate cut in March was “not the base case.”

Still, the Federal Reserve dropped a reference to further rate hikes from its statement, while noting the risks to achieve its employment and inflation objectives are moving into better balance.

The FOMC meeting outcome drove US Treasury yields lower, while bonds surged on fresh concerns over regional US banks after New York Community Bancorp’s stock plummeted 37% to the lowest levels in more than 20 years after reporting a surprise loss.

Meanwhile, preliminary data showed on Thursday that Euro Area’s annual inflation had slowed to 2.8% in January from 2.9% in December, while matching market consensus.

Annual core CPI inflation, which excludes volatile categories such as food and energy, continued to decelerate in January, at 3.3%, from 3.4% in December. It has been the lowest core inflation rate since March 2022.

Energy prices in the bloc dropped 6.3% year-on-year, following a 6.7% decline in December, while services inflation was stable at 4%.

Last month, prices rose at a slower rate for food, alcohol and tobacco (5.7% YoY versus 6.1% YoY in December), and non-energy industrial goods (2% YoY versus 2.5% YoY in December), Eurostat reported.

As of 10:01 GMT on Thursday the EUR/USD currency pair was edging down 0.18% to trade at 1.0798. Earlier in the session, the major Forex pair went down as low as 1.0780. The latter has been the pair’s weakest level since December 13th 2023 (1.0773).

The Euro retreated 1.99% against the US Dollar in January, while marking its worst performance since September 2023.