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EUR/USD falls after Fed notes signs of improved labor market, economy

Published 07/29/2015, 06:00 PM
Updated 07/29/2015, 06:12 PM
The euro fell sharply to 1.0984 against the dollar on Wednesday

The euro fell sharply to 1.0984 against the dollar on Wednesday

Investing.com -- EUR/USD fell sharply on Wednesday, as the Federal Reserve observed signs of an improving U.S. labor market and economy in its latest monetary policy statement without offering any indications on whether it could begin hiking interest rates later this fall.

EUR/USD traded in a tight range between 1.0967 and 1.1084, before settling at 1.0984 down 0.68% on the session. The currency pair has closed below 1.10 in 11 of the last 13 sessions, amid intense speculation that the Federal Open Market Committee could start raising short-term interest rates during its September meeting.

U.S. short-term interest rates have remained at its current level between zero and 0.25% for nearly six years since the end of the Financial Crisis. Nearly a decade has passed since the Federal Open Market Committee last instituted a rate hike. On Wednesday, the FOMC left its benchmark Federal Funds Rate unchanged for the 53rd consecutive meeting.

EUR/USD likely gained support at 1.0808 the low on July 20 and was met with resistance at 1.1131, the high from July 27.

Following the completion of its two-day July meeting on Wednesday, the FOMC said the labor market has shown signs of progressing, citing indicators that showed the underutilization of labor resources have diminished in recent months. Last month, the U.S. unemployment rate fell by 0.2% to 5.3%.

"The labor market continued to improve, with solid job gains and declining unemployment," the FOMC said in the statement. "The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate."

Still, the Fed remains concerned with the slow pace of inflation as energy prices have fallen by approximately 20% since its last meeting. The Fed reiterated on Wednesday that it will likely raise the Fed Funds Rate when it sees further improvements in the labor market and is reasonably confident that inflation will move back toward its targeted goal of 2%. Long-term inflation has not reached the Fed's targeted level during a single FOMC meeting over the last three years.

"This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments," the FOMC added.

Yields on U.S. 10-Year Treasuries fell initially after the statement's release, but closed at session highs of 2.29%, up four basis points. Yields on German 10-Year bunds rose three basis points to 0.72%.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, also closed near session highs after moving lower in the minutes after the announcement. For the session, the index gained 0.39% to 97.24.

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