EUR/USD Swings Wildly Post Key Central Bank Decisions: Downside Bias Taking Hold

Key Central Banks' decisions have dictated the financial markets this week. The Bank of Japan took a historic step by raising interest rates by a symbolic 0.1%, the first increase since 2007.

However, the market expected a more significant move, causing the Japanese yen to weaken further.

Meanwhile, the Federal Reserve and the Bank of England left rates unchanged as anticipated. Surprisingly, the Swiss National Bank decided to cut interest rates, leading to the Swiss franc's weakening.

EUR/USD on a Wild Ride

The Fed's meeting was closely watched, but no pivot date was announced, leaving the EUR/USD pair in uncertainty.

Although rates were expected to remain unchanged, the overall sentiment was dovish due to the Fed's announcement of a slower reduction in its balance sheet. While there's no official confirmation, the market speculates a pivot in June.

As a result, the currency pair experienced volatility, rebounding strongly after the meeting but retracing during the following session. Ultimately, the rate remained almost unchanged from Wednesday, giving a neutral impression.

If selling pressure persists, the next target is the support level around 1.08. Breaking this level could lead to a move towards the demand zone near 1.07.

Why Did the SNB Cut Interest Rates?

The biggest surprise this week was the Swiss National Bank's decision to cut interest rates by 25 bps, with the market consensus anticipating no move.

This is not the first time the SNB has surprised the market. These types of unsignaled decisions are not uncommon with the Swiss monetary policy.

The main argument is inflation remaining on target and its projection, which assumes stabilization in the coming years.

In the coming months, inflation dynamics will invariably remain key, and in a situation where we see continued disinflation, it is not unlikely that we will see another previously unsignaled reduction.

Bank of England to Pivot Soon?

Yesterday's meeting of the Bank of England did not bring much change in terms of current monetary policy, as confirmed primarily by the results of the vote: 8 members in favor of leaving current levels and 1 in favor of cuts.

"Monetary policy will need to remain restrictive for a sufficiently long time to bring inflation back to the 2 percent target on a sustainable basis in the medium term,"

This statement clearly reflects the board members' stance on current policy. It suggests that the BOE is unlikely to take proactive measures, and any rate cuts may only occur after similar actions by the ECB and the Fed.

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