- EUR/USD consolidates in a tight range above the crucial support of 1.0700. The major currency pair fell sharply on Wednesday amid caution before the Federal Reserve’s monetary policy announcement. However, it recovered strongly after the Fed’s guidance on interest rates turned out less hawkish than feared.
- Fed’s decision to hold interest rates steady in the range of 5.25%-5.50% for the sixth time in a row was no surprise for investors but its commentary showed that it is eager to shift to a neutral stance from a hawkish one. Fed Chair Jerome Powell said in his press conference after the Federal Open Market Committee (FOMC) meeting that he still sees interest rates lower this year even though stalling progress in the disinflation process has hit his confidence.
- A sharp decline in the scale of balance sheet tapering was another indication of the central bank’s intention to pivot to quantitative easing gradually. The Fed said that starting on June 1, it will reduce the cap on Treasury securities it allows to mature and not be replaced to $25 billion from its current cap of up to $60 billion per month, Reuters reported.
- This announcement and wording put significant pressure on the US Dollar. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, is slightly up to 105.75 but has come down significantly from a two-week high of 106.50. The volatility in the US Dollar is expected to remain high as investors await the United States Nonfarm Payrolls (NFP) and the ISM Services PMI data for April, which will be published on Friday. The US NFP is estimated to have grown by 243K, lower than the 303K job additions registered in March. The ISM agency is expected to show a rise in the Services PMI to 52.0 from 51.4 in March.
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