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US Fed Dovishness Caused EURUSD To Spike

US Fed Dovishness Caused EURUSD To Spike

EURUSD is now trading at 1.0640 support. Yesterday the pair moved all the way back to 1.1040 after the US Fed Chair Yellen took a more dovish stance on the economy. She removed patience from the vocabulary but indicated that strong dollar and slowing export growth are risks for the economy. According to Janet Yellen the change in forward guidance did not alter the timing of the first tightening and that a hike in April remained unlikely.

The tone of the statement also suggested a June hike is not likely to happen, especially since the FOMC downgraded its assessment of the economy in the opening paragraph. According to them “economic growth has moderated somewhat” thanks in part to slowing export growth. The Fed also seemed less confident that inflation pressures are transitory, which will continue to be “monitored closely.” The policy paragraph now states that rates will rise when the Fed sees “further improvement in the labor market and is ‘reasonably confident’ that inflation will move back to its 2 percent objective.”

It is interesting how no one paid attention to the headline inflation while oil prices were high. The focus was on CPI as it allowed the central banks to maintain the easy money policies. Now, suddenly it is the headline figure that seems to be in central banks’ focus. In the light of this the current wording in the Fed’s policy paragraph gives them more freedom in terms of continuing with the zero rates policy.

Janne Muta
Chief Market Analyst

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Thursday, 19 Mar, 2015 / 9:49

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