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EUR/USD Jumps as FOMC Warns Against Being Too Optimistic

July 9, 2014 by

EUR/USD jumped today after the Federal Open Market Committee released minutes of its June policy meeting, revealing that FOMC members were concerned that investors are too eager to take risk, disregarding possible dangers to economic recovery. This wording was in line with the previous comments of US policy makers, who were attempting to cool optimism among market participants. It hurt the dollar, which was previously rising on the view that monetary tightening from the Federal Reserve is almost guaranteed.

US crude oil inventories decreased by 2.4 million barrels last week but remained above the upper limit of the average range for this time of year. Analysts predicted a decrease by 1.7 million, while the previous week’s drop was at 3.2 million. Total motor gasoline inventories increased by 0.6 million barrels and stayed in the middle of the average range. (Event A on the chart.)

FOMC meeting minutes revealed that US policy makers are worried that financial market participants are too optimistic and took sustainable economic recovery for granted, disregarding potential risks (event B on the chart):

Participants also discussed whether some recent trends in financial markets might suggest that investors were not appropriately taking account of risks in their investment decisions. In particular, low implied volatility in equity, currency, and fixed-income markets as well as signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy.

Yesterday, a report on consumer credit was released, showing an increase by $19.6 billion in May, which was below the predicted figure of $21.3 billion and the April change of $26.1 billion. (Not shown on the chart.)

EUR/USD-2014-07-09

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