EUR/USD surged closer to 1.0400 during the European session on Thursday as the US Dollar (USD) strength took a breather after Wednesday's sharp rally.

The US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, held gains near a fresh two-year high above 108.00.

The greenback drew significant bids after the Federal Reserve (Fed) cut its key lending rate by 25 basis points (bps) to 4.25%-4.50% on Wednesday, as expected, but signaled fewer rate cuts for next year.

In the latest dot chart, the Fed revised its projection for the number of interest rate cuts in 2025 to two from the four expected at its September monetary policy meeting. In a press conference, Fed Chair Jerome Powell pointed to uncertainty over inflation, easing downside risks to employment and strong growth in the second half of the year as factors forcing officials to be cautious about cutting rates.

"I also pointed out that we are getting close to the neutral interest rate, which is another reason to be cautious about where it goes next," Powell added.

Meanwhile, the Fed has also revised its forecast for the core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred measure of inflation, to 2.5% for 2025, up from the previous estimate of 2.2% in its latest economic projections.

Source: FXStreet