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FOMC Minutes Stop Rally of EUR/USD

February 19, 2014 by

The rally of EUR/USD halted today after the minutes of the Federal Reserve latest monetary policy meeting. It looks like the Fed is going to keep reducing its monthly asset purchases and this is positive for the dollar. It allowed the US currency to shrug off the poor housing data, which was even worse than pessimistic forecasts.

Both housing starts and building permits dropped last month. Housing starts were at the seasonally adjusted annual rate of 880k in January, below the revised December estimate of 1,048k and the analysts’ prediction of 950k. Building permits were at the seasonally adjusted annual rate of 937k in January, 5.4 below the revised December rate of 991k and the median forecast of 980k. (Event A on the chart.)

PPI increased 0.2% in January, seasonally adjusted, matching expectations, following the 0.1% rise in December. (Event A on the chart.)

FOMC minutes revealed that policy makers think that further asset-purchase cuts will be appropriate in the future (event B on the chart):

In their discussion of monetary policy in the period ahead, all members agreed that the cumulative improvement in labor market conditions and the likelihood of continuing improvement indicated that it would be appropriate to make a further measured reduction in the pace of its asset purchases at this meeting. Members again judged that, if the economy continued to develop as anticipated, further reductions would be undertaken in measured steps.

EUR/USD-2014-02-19

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