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EUR/USD Soars After Fed Lowers Interest Rates Projections

March 16, 2016 (Last updated on March 17, 2016) by

EUR/USD was not moving far during the Wednesday’s session, slowly trailing down. Yet everything has changed after the Federal Open Market Committee ended its two-day monetary policy meeting. While the policy remained the same, the mostly dovish tone of the statement and the lowered economic projections resulted in a spike of the currency pair.

US CPI declined 0.2% in February, and forecasters were right on the money, predicting exactly that outcome. Consumer prices were virtually unchanged in January. (Event A on the chart.)

Housing starts were at the seasonally adjusted level of 1.18 million in February, beating both expectations of 1.15 million and the previous month’s level of 1.12 million. Building permits, on the other hand, trailed expectations, being at 1.17 million while analysts had predicted them to stay at the same 1.20 million level as in January. (Event A on the chart.)

Industrial production and capacity utilization declined in February. Industrial production was down 0.5% after falling 0.8% in January. Specialists had forecast a smaller drop by 0.2%. Capacity utilization decreased from 77.1% to 76.7% while forecasts had promised a higher reading of 76.9%. (Event B on the chart.)

Crude oil inventories increase by 1.3 million barrels last week to yet another historic high. This is compared to the forecast of 2.9 million the prior week growth by 3.9 million. Total motor gasoline inventories were down by 0.7 million barrels but stayed above the upper limit of the average range. (Event C on the chart.)

FOMC kept interest rates stable after it has concluded its two-day meeting, surprising no one. (Event D on the chart.) What was surprising is the reduction of the projected path for the federal funds rate. The Committee said:

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

EUR/USD as of 2016-03-16

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