EUR/USD Sinks to New Lows After FOMC

EUR/USD dipped today to a new multi-year low after the Federal Open Market Committee released its monetary policy statement. Federal Reserve chief Janet Yellen was speaking at the press-conference after the meeting, and the Fed released its economic projections as well as plans for eventual normalization of monetary policy. The dollar was not particularly strong ahead of the meeting, especially after inflation data disappointed economists, but the currency rallied against its major peers after Fed’s policy announcement even though US policy makers did not say anything particularly pleasant for dollar bulls.
CPI fell 0.2% in August, while analysts expected it to rise at the same 0.1% rate as in July. (Event A on the chart.)
Current account deficit shrank from $102.1 billion in Q1 2014 to $98.5 billion in Q2 instead of widening to $114.0 billion as was predicted by experts. (Event A on the chart.)
US crude oil inventories increased by 3.7 million barrels last week and are in the upper half of the average range for this time of year. The report frustrated specialists who have expected a drop by about the same amount as the previous week — 1.0 million. Total motor gasoline inventories decreased by 1.6 million barrels and are in the middle of the average range. (Event B on the chart.)
FOMC trimmed its asset-purchase program by another $10 billion during today’s policy meeting, and Federal Reserve Chairperson Janet Yellen said at the press-conference that the program will be ended next month unless the economic situation changes significantly. (Event C on the chart.) The statement maintained its wording for an interest rate increase:

The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored.

Market analysts paid attention to the word “considerable”, interpreting it as a sign that the central bank is not going to start monetary tightening as early as was expected. The Fed released its plan for eventual normalization of monetary policy, but Yellen commented on the plan:

Let me underscore that our release of this information is not meant to convey any change in the stance of policy.

As for future monetary policy, the Chairwoman commented:

Let me reiterate, however, that the Committee’s expectations for the path of the federal funds rate are contingent on the economic outlook. If the economy proves to be stronger than anticipated by the Committee, resulting in a more rapid convergence of employment and inflation to the FOMC’s objectives, then increases in the federal funds rate are likely to occur sooner and to be more rapid than currently envisaged. Conversely, if economic performance disappoints, increases in the federal funds rate are likely to take place later and to be more gradual.

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