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Euro Extends Gains after Fed Remains Muted about Rate Hike

H.S. Borji
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Euro Extends Gains after Fed Remains Muted about Rate Hike

The euro advanced for a second consecutive day against the US dollar after the Federal Reserve signalled it won’t rush to raise interest rates amid slower economic growth.

The EURUSD soared to an intraday high of 1.3643. The pair would later consolidate at 1.3628, advancing 0.3 percent. The pair is now trading above the 20-day average. Initial support is likely found at 1.3588 and resistance at 1.3838.

By the end of the European session, the EURUSD was on pace for a weekly gain of 0.75 percent.

Federal Reserve officials downgraded their forecast for 2014, but maintained plans to trim bond buying for a fifth consecutive month. The Fed said it now expects the US economy to grow between 2.1 percent and 2.3 percent this year. The previous estimate pegged growth at 2.9 percent for the year.

The growth outlook for 2015 remained unchanged.

As expected, the central bank trimmed monthly bond buying by $10 billion in July to $35 billion. The central bank is expected to end its long-running quantitative easing program before the end of the year.

Interest rates were left unchanged at 0.25 percent.

Fed officials also gave a more subdued forecast for long-run interest rates. Officials now believe interest rates will be at 3.75 percent over the long-haul, down from the previous estimate of 4 percent. These expectations suggest central bankers won’t raise interest rates too quickly during the recovery period.

The EURUSD has declined around 0.4 percent since the European Central Bank’s June 5 rate decision. The ECB cut interest rates to 0.15 percent and introduced a negative deposit rate at the June meetings in an effort to shore up inflation. Euro-wide consumer inflation eased back to 0.5 percent annually in May.

Eurozone inflation has been below 1 percent since October 2013.

In other trading, the euro was steady against the British pound. The EURGBP consolidated at 0.80 after trading within a range of 0.7994-0.8024. The trend line shows initial support at 0.7972 and resistance at 0.8023.

In UK data, retail sales declined 0.5 percent in May, as expected by the consensus, the Office for National Statistics reported today. Year-on-year, retail sales advanced 3.9 percent, below estimates calling for 4.3 percent.

There were no major releases from the Eurozone Thursday.

On Friday Germany will release data on producer inflation for the month of May. The European Central Bank will also release Eurozone trade data for April.

The European Commission on Friday will report consumer confidence in economic activity. The consumer confidence index this month is expected to improve slightly from -7.1 to -6.5.

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