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EUR/USD Climbs After FOMC Keeps Monetary Policy Accommodative

June 10, 2020 by

EUR/USD climbed today after the Federal Open Market Committee announced its decision to keep interest rates and the size of its asset-purchase program unchanged and also predicted that interest rates will remain at the current historic low levels for a long time.

CPI fell 0.1% in May on a seasonally adjusted basis, whereas analysts were expecting no change. Still, it was better reading than the drop of 0.8% registered in the preceding month. (Event A on the chart.)

US crude oil inventories climbed by 5.7 million barrels last week instead of falling by 1.8 million barrels as experts had predicted. The stockpiles decreased by 2.1 million barrels the week before. Total motor gasoline inventories increased by 0.9 million barrels. (Event B on the chart.)

Treasury budget deficit shrank to $398.8 billion in May from $738.0 billion in April and was better than the forecast value of a $580.0 billion deficit. (Event C on the chart.)

As was widely expected, FOMC kept its monetary policy unchanged, leaving the target range for the federal funds rate at 0%-0.25% and continuing to perform asset purchases “at least at the current pace”. The Committee pledged to keep monetary policy accommodative until the economy recovers:

The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

Indeed, the projections showed that the vast majority of the FOMC members expect the target range for the federal funds rate to remain at the current level throughout 2022 before rising sharply later. Projections for most of the macroeconomic indicators included in the forecast got big negative revisions compared with the December estimates. The only exception was economic growth. While the forecasts predicted a sharp downturn for the US economy this year, the outlook for 2021 and 2022 was revised up significantly. (Event C on the chart.)

Yesterday, a report on wholesale inventories was released, showing a drop of 0.3% in April. Specialists were expecting the same 0.4% rate of drop as in the previous month. (Not shown on the chart.)

If you have any comments on the recent EUR/USD action, please reply using the form below.

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