EUR/USD Sinks as FOMC Reduces Asset Purchases

EUR/USD tumbled today after the Federal Open Market Committee decided to continue with asset-purchases reductions, trimming monthly purchases by another $10 billion. Moreover, FOMC signaled that it may raise interest rates by the end of 2015. Such move was expected, but the market reacted to the announcement in a very strong manner.
Current account deficit fell from $96.4 billion in Q3 2013 to to $81.1 billion in Q4. Analysts’ estimate ahead of the official data suggested deficit of $88.0 billion.
Crude oil inventories increased by 5.9 million barrels last week, above the forecast of 2.4 million, and are in the upper half of the average range for this time of year. The previous week’s increase was at 6.2 million. Total motor gasoline inventories decreased by 1.5 million barrels but are near the upper limit of the average range.
FOMC reduced its monthly purchases by another $10 billion, as was widely expected. The Committee said:

The Committee currently judges that there is sufficient underlying strength in the broader economy to support ongoing improvement in labor market conditions. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases.

At the same time, the FOMC noted that interest rates will remain low for a prolonged period of time and dropped the 6.5% unemployment threshold for a start of rate increases as unemployment reached this level faster than policy makers had anticipated. Still, most policy makers believed that borrowing costs will be increased by the end of 2015.

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