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EUR/USD moves to two-month high, amid cautious approach by Fed

Published 04/29/2015, 06:18 PM
Updated 04/29/2015, 06:24 PM
The euro moved above 1.10 on Wednesday, its highest level since early-March
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Investing.com -- The euro continued its strong rebound against the dollar in recent days, moving to a two-month high as the Federal Reserve remained cautious on the timing of an interest rate hike following soft GDP data for the first quarter of the year.

EUR/USD gained more than 1.5% on the session to settle at 1.1128, its highest level since Mar. 5. The pair is now up more than 2.5% since late last week, marking its sharpest five-day ascent since 2009.

On Wednesday, in its latest statement, the Fed removed all calendar references on when it could begin raising rates opting to employ a data driven approach for lift-off. In a statement released by the Federal Open Market Committee, the Fed said it will start to raise the target range for its Fed Funds Rate when it sees improvements in the labor market and it is confident that inflation will move back toward its target range of 2%.

Furthermore, the Fed said it will take into account labor market conditions, inflationary pressures and expectations of international financial developments when it decides on the timing of a rate increase.

Although unemployment remained steady since the Fed's last meeting in March, it was disappointed with a number of other economic indicators including: household spending declines, weak export figures and low inflation. The Fed is still optimistic for improved growth in the second quarter as transitory factors such as unseasonable weather and low energy prices dissipate.

"Although growth and output slowed during the first quarter, the committee expects with appropriate policy accommodation that economic activity with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate," the FOMC said in a statement.

Earlier, the U.S. Department of Commerce said GDP for the first quarter grew at 0.2%, far below expectations for growth of 1%. The figures were in line with forecasts by the Federal Reserve of Atlanta, which predicted GDP growth of 0.2%. GDP revisions for the fourth quarter of last year remained unchanged at 2.2%.

Exports continued to serve as the biggest drag on the U.S. economy, underscoring the impact of the stronger dollar and the extended West Coast port strike. Real exports of goods and services decreased 7.2 percent in the first quarter, in comparison with an increase of 4.5 percent in the fourth.

Yields on U.S. 10-Year Treasuries soared to 2.046, moving above 2% for the first time since Mar. 15. Yields had trended downward since dovish comments from Janet Yellen at the FOMC's March meeting increased expectations for a delayed interest rate hike.

In Europe, Germany's Dax 30 plunged 378.94 or 3.2% to 11,432.72, as European investors anticipated a delayed U.S. rate hike. The sell-off represented its largest point decline since October, 2008 and its largest percentage decline since March, 2014.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of major currencies, fell 0.77% to 96.19.

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