Investing.com -- The euro surged against the dollar on Wednesday afternoon soaring above 1.13, after a relatively dovish Federal Open Market Committee declined to issue any explicit wording on the timing of its first rate hike in nearly a decade.
EUR/USD gained 0.0094 or 0.79% to settle at 1.1336 on Wednesday, marking the first time the pair closed above 1.13 in the last six sessions. While the FOMC opted to keep its benchmark Fed Funds Rate at its current level of zero to 0.25% on Wednesday, Federal Reserve chair Janet Yellen reiterated that the U.S. Central Bank will take a "data-driven approach," to the timing of its first rate hike since June, 2006.
“Certainly an increase this year is possible,” Yellen said during a news conference in Washington. “We could certainly see data that would justify that.”
In terms of expectations for future economic conditions, 10 members of the FOMC built in two quarter-point interest rate hikes for the remainder of 2015, sending the clearest indication in months that the Fed could raise rates this year. The FOMC also upgraded its economic outlook in its Federal Funds Rate Target, otherwise known as its "dot plot."
Despite the increased possibility of a rate hike this year, the Fed still expects to raise rates gradually on a longer-term basis. In its statement released on Wednesday, the Fed indicated that the median level of the FOMC's target for the Federal Funds Rate fell 25 basis points from its March projection for each of the next two years. By the end of 2016, the Fed projects the rate will reach 1.625%, down from 1.875% in March. A year later, the Fed anticipates that it will lift the rate to 2.875%, also down slightly from its March projection of 3.125%.
Future contracts based on the Chicago Mercantile Exchange's FedWatch indicated on Wednesday that investors now think there is a stronger chance lift-off will occur in December, opposed to the fall. The dovish stance sent the euro soaring, as it moved to a session-high of 1.1348, up from a level of 1.1257 before the Fed's announcement.
"The importance of the initial increase should not be overstated," Yellen said, adding that interest rates will be "highly accommodative," for quite some time.
Yellen reiterated on Wednesday that the Fed would like to see improvements in the U.S. economy and labor market before it begins policy normalization. In last month's robust jobs report, the U.S. economy added 280,000 jobs in May, while hourly wage growth increased by 0.3%.
“We agree labor market slack has diminished to some extent,” Yellen added.
The Fed also downgraded its expectations for GDP growth for the year, slashing it to a level between 1.8%-2.0%, down from previous of forecasts of 2.3 to 2.7%. As for unemployment forecasts, the FOMC revised its projections to 5.2-5.3% from previous estimates of 5.0 to 5.2%.
In addition, the FOMC left its projections for PCE Inflation for 2015 unchanged at 0.6 to 0.8. For 2016, the FOMC revised inflation projections to 1.6 to 1.9%, slightly down from estimates of 1.7 to 1.9% in March. By 2017, the FOMC anticipates that PCE Inflation will rise to 1.9-2.0%, leaving its March projection unchanged. Long-term inflation has remained below the Fed's targeted goal of 2% for the last 36 months.
In Europe, the Greece Central Bank warned that the nation could be facing an "uncontrollable crisis," if a deal is not reached with its international creditors to unlock critical aid deemed necessary to stave off bankruptcy. The comments were delivered ahead of Thursday's meeting of euro zone finance ministers in Luxembourg. Over the last three days, deposit outflows from Greek banks have reached a level between $1.75-$1.85 billion, according to Dow Jones.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, plunged 0.82% to 94.47, paring earlier gains following Yellen's comments.