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EUR/USD surges to near one-month high in aftermath of Fed rate decision

ForexJan 28, 2016 05:38PM ET
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The euro gained more than 0.30% against the dollar on Thursday to close above 1.09

Investing.com -- EUR/USD rose considerably on Thursday, reaching near one-month highs, as foreign exchange traders continued to digest a relatively neutral monetary policy statement from the Federal Reserve after the completion of its two-day January meeting one session earlier.

The currency pair traded between 1.087 and 1.0968 before settling at 1.0939, up 0.0038 or 0.33% on the session. At one point on Thursday, the euro surged to its highest level against the dollar in more than two weeks. After suffering a three-day losing streak versus the dollar at the end of last week, the euro has closed higher against its American counterpart in each of the last four sessions.

EUR/USD likely gained support at 1.0538, the low from December 3 and was met with resistance at 1.1496, the high from Oct. 15.

Investors on Thursday continued to react to a decision by the Federal Open Market Committee (FOMC) to leave short-term interest rates unchanged. Citing weakness in the global economy and sluggish inflation, the FOMC voted unanimously on Wednesday afternoon to hold its benchmark Federal Funds Rate at its current range between 0.25 and 0.50%. The decision came just over a month after the Fed began its first tightening cycle in nearly a decade with its first rate hike in seven years.

A wide sampling of economists are largely split on the direction the Fed will head in with its next move, after reviewing a January statement rife with ambiguity. Analysts appeared divided on whether the statement indicates that the Fed could be leaning toward a subsequent rate hike in March or if the U.S. central bank could delay further tightening measures beyond the first quarter. The decision, according to the Fed's statement, will hinge on evolving labor market conditions, inflation expectations and developments in the global financial markets. Notably, the FOMC removed a phrase that it is "reasonably confident" inflation will move toward its 2% objective from the statement.

"In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal," the FOMC said in the statement. "The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate."

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell 0.41% to 98.62, amid a batch of disappointing economic data. Last month, new durable goods orders plunged 5.1%, falling sharply below consensus estimates of a 0.2% gain. Pending home sales for December were also soft, inching up 0.1 to 106.8, following a downwardly revised 1.1% decline a month earlier. The index closed lower for the fifth straight session.

In the euro zone, industrial sentiment for January fell 3.2 points on the month, slightly below forecasts for a 2.4% decline. In addition, economic sentiment in January fell to a reading of 105, just under consensus expectations of 106.4.

Yields on the U.S. 10-Year fell two basis points to 1.98%, while yields on the Germany 10-Year plunged four basis points to 0.40%. Government bond yields on 10-year German bunds dropped to its lowest level in nine months, amid heightened concerns of deflation.

EUR/USD surges to near one-month high in aftermath of Fed rate decision
 

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