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EUR/USD Rallies on Dismal US GDP, FOMC Meeting

April 29, 2020 by

EUR/USD rallied on Wednesday. There were two reasons for the rally: US gross domestic product and the monetary policy meeting of the Federal Open Market Committee. GDP dropped more than even pessimistic analysts expected. And the FOMC promised to keep interest rates low for a while.

GDP dropped by 4.8% in the Q1 2020 according to the advance (first) estimate. It was even bigger than pessimistic forecasts of a 4.0% drop. The economy expanded by 2.1% in the previous quarter. (Event A on the chart.)

Pending home sales sank by 20.8% in March. In this case, experts also were not prepared for how bad the actual situation was despite being pessimistic, predicting a 13.3% drop. Sales were up 2.3% in the preceding month. (Event B on the chart.)

US crude oil inventories rose by 9.0 million barrels last week but the increase was not as big as the one predicted by specialists — 11.2 million barrels. Total motor gasoline inventories dropped by 3.7 million barrels, though remained above the five-year average for this time of year. (Event C on the chart.)

FOMC decided to leave its monetary policy unchanged, keeping the target range for the federal funds rate at 0%-0.25%. (Event D on the chart.) Such a decision was widely expected by market participants after the Committee held several unscheduled meetings last month to address the impact of the coronavirus pandemic on the economy. Policymakers pledged to keep interest rates low as long as it needed to facilitate recovery of the economy:

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.

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