The FOMC minutes released on Wednesday did not excite EUR/USD traders, leaving buyers and sellers unimpressed. The minutes reflected the key points from the accompanying statement and the main messages conveyed by Jerome Powell, not only during the post-meeting press conference but also in subsequent appearances.

The Fed's Stance

The document emphasized that the Federal Reserve will continue to take a cautious approach to easing monetary policy. The market has long priced this stance in. According to the CME FedWatch Tool, the probability of a rate cut at the June meeting is just 2% and 19% for July. In other words, the market is almost certain that the Fed will maintain a wait-and-see approach at least until September.

However, this is not a hawkish factor, as the Fed expressed serious concerns about stagflation risks during the May meeting. One particularly notable phrase in the minutes stated that the central bank may face a difficult trade-off if inflation remains persistent while growth and employment forecasts weaken.

Powell had previously voiced similar concerns, stating that Trump's tariff policy poses simultaneous risks of slowing growth and accelerating inflation. The Fed will be forced to make tough decisions with unavoidable side effects if these risks materialize. In Powell's words, if the two main mandates of the central bank conflict, the Fed will assess the extent of deviation of each indicator from target levels "and act based on a balanced approach." Hence, a rate cut this year "could be either appropriate or inappropriate."

GDP and Court Ruling

It's important to note that the Fed's May meeting occurred before the Geneva summit between the U.S. and China, after which both sides agreed to reduce tariffs by 115%. As a result, stagflation risks have lessened, and the relevance of the minutes has also diminished. The market remains convinced that the Fed will hold steady, at least for the subsequent two meetings.

Meanwhile, the latest U.S. GDP report weighed on the dollar, even though the headline figure technically improved. The second estimate revised the Q1 GDP contraction from -0.3% to -0.2%. However, dollar bulls were unimpressed: the U.S. dollar index dropped sharply, sliding back toward the 99.00 level. EUR/USD rebounded to the 1.13 zone after briefly dipping to 1.1211 (the dollar found short-lived support from a federal court ruling that annulled Trump's tariff orders).

Dollar bulls reacted negatively because the GDP report confirmed economic contraction amid rising inflation. The GDP price index (deflator) rose 3.7% year-over-year (up from 2.4% in Q4). Government spending declined by 4.6%—the worst result since Q1 2022—compared to a 4.0% increase in the previous quarter.

Overall, the second estimate differed little from the first, so market reaction is expected to be limited. Moreover, the Q1 economic contraction was mainly due to a surge in imports as businesses stockpiled goods ahead of the new tariff plan. Revised data shows imports jumped 42.6%.

Still, the fact remains: the U.S. economy is slowing, and inflation expectations are at a 40-year high. The infamous "ghost of stagflation" hasn't disappeared and continues to deter investors from the greenback.

Legal Developments

The federal court's ruling added to the pressure on the dollar, which blocked the individual and reciprocal tariffs introduced by former President Trump. The judges found that Trump overstepped his authority and misinterpreted the International Emergency Economic Powers Act. Initially, this news boosted the dollar, but the rally was short-lived. First, the White House legal team filed an appeal within minutes of the ruling—and don't forget, there's also the Supreme Court. Second, Trump could reintroduce tariffs under different legal grounds. The court's decision does not cover auto imports, car parts, steel, and aluminum tariffs, which were enacted under the Trade Expansion Act.

As a result, the dollar fell under renewed pressure, and the GDP report only worsened the fundamental outlook.

Technical Outlook

Despite the greenback's general weakness, EUR/USD remains within a range between the middle and upper lines of the Bollinger Bands on the D1 timeframe—specifically, the 1.1280–1.1430 corridor. Given the dollar's vulnerability, corrective pullbacks may be used as opportunities to open long positions with a primary target of 1.1430 (upper Bollinger Band on the daily chart).