EURUSD is bouncing around 1.0420.

In Wednesday’s European session, the EURUSD is cautiously trading around 1.0420 as investors await the Federal Reserve’s (Fed) monetary policy statement at 19:00 GMT. Since authorities concerned that the labor market stabilized and the disinflation trend toward the central bank’s aim of 2% has halted, it largely expected that the Fed will maintain interest rates in the range of 4.25% to 4.50%.

Fed anticipated to maintain stable interest rates.

Markets already factored in the Fed’s Investors will closely monitor Fed Chair Jerome Powell’s press conference following the policy decision, which  expected to keep rates steady. Given the persistent inflation outlook and the belief that US President Donald Trump’s implementation of high tariffs will raise the cost of goods and services, investors would like to know how long the Fed will maintain interest rates at their current levels.

Concerns about global economy have intensified as a result of Trump’s desire for increased tariffs on its trading partners. To increase domestic production, President Trump has suggested imposing taxes on steel, advanced electronics, and medications. Meanwhile, White House Press Secretary Karoline Leavitt said Tuesday that 10% tariffs on China and 25% duties on Canada and Mexico are quite likely. According to Leavitt, 25% The February 1 tariffs on Canada and Mexico are “still on the books.” The President is “very much still considering 10% tariffs on China” starting on Saturday, Leavitt continued.

The US Dollar (USD) is trading quietly ahead of the Fed’s policy announcement, with the US Dollar Index (DXY) swaying at 107.90. Assuming that Trump’s tariffs would intensify price pressures and compel the Fed to maintain interest rates at their current level for an extended period of time, the US dollar has performed well in recent months.

Daily Market Update: EURUSD is shaky as the ECB appears to be planning to lower rates on Thursday.

The ECB’s (European Central Bank) monetary policy meeting on Thursday is another factor contributing to the EUR/USD pair’s cautious performance. Traders have completely priced to reduce the interest rate by 25 basis points (bps), bringing the deposit rate down to 2.75%. Additionally, market participants are certain that by the summer, the ECB would keep lowering its main borrowing rates at all of its meetings. The immediate and long-term prognosis for the Euro (EUR) would negatively impacted by such a situation.

Amid concerns that Trump’s tariffs may worsen the already troubled Eurozone economy, ECB dovish bets have increased. The Federal of German Industries (BDI) stated Tuesday that it expects Germany, the shared bloc’s mainstay, to contract this year. Due to the government’s inability to address the country’s underlying economic weakness, the agency predicts that the German economy will contract for the third consecutive year. “The circumstances are extremely serious: “There has been a structural break in industry growth in particular,” stated Peter Leibinger, president of the BDI.

ECB President Christine Lagarde’s news conference regarding the old continent’s response to Trump’s tariffs will be closely watch by investors. Lagarde said last week at the World Economic Forum (WEF) in Davos that Trump’s tariffs would be “selective” and “focused,” and that Europe must “anticipate what will happen” and be “prepared in order to respond.”

“Given the Treasury’s active planning, the tariff threat may be view more seriously, which materially reduces the upside potential for the euro,” ING analysts stated. Scott Bessent, the US Treasury Secretary, suggested on Monday that a 2.5% tax be applied universally and that they be raise at a comparable rate each month.