Investing.com -- EUR/USD rose sharply on Wednesday to 1-week highs, as the Dollar and U.S. bond yields unexpectedly tumbled late in the session after the Federal Reserve held interest rates steady at a meeting in Washington D.C.
At session-highs, the currency pair peaked at 1.1071, before falling back slightly to 1.1058 at the close of U.S. afternoon trading, up 0.0071 or 0.65% on the session. Before the release, the euro fell as low as 1.0966 against the dollar hovering near four-month lows. Despite Wednesday's rally, the euro has still fallen approximately 3% against the Dollar since voters in the U.K. unexpectedly approved a referendum to leave the European Union on June 24.
EUR/USD likely gained support at 1.0909, the low from June 24 and was met with resistance at 1.1184, the high from July 5.
On Wednesday afternoon, the Federal Open Market Committee (FOMC) in a 9-1 vote left the target range on its benchmark Federal Funds Rate unchanged at a level between 0.25 and 0.50%. Notably, the FOMC said in its July monetary policy statement that near term risks to the economic outlook have diminished, while economic activity has picked up since the committee last met in June has expanded at a moderate rate. Kansas City Fed president Esther George served as the lone dissenter.
In December, the FOMC abandoned a seven-year zero interest rate policy by lifting the Fed Funds Rate by 25 basis points. It represented the first rate hike by the Fed in nearly a decade. Although the FOMC said last December that it could raise interest rates as much as four times in 2016, the Committee lowered its median projections to only two rates hikes for the year, in forecasts released in June.
"The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run," the FOMC said in the July statement. "However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data."
In addition, the FOMC noted that market-based measures of inflation remain low as inflation continues to run below the Committee's long-term 2% targeted goal. The FOMC also said the labor market strengthened in June amid strong gains on the month, while indicators pointed to some increases in labor utilization.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.40% to an intraday low of 96.71 before inching back up to 96.75 at the close of U.S. afternoon trading. In overnight trading on Monday, the index surged to 97.62, reaching its highest level since late-April.
Any rate hikes by the Fed this year are viewed as bullish for the dollar, as foreign investors pile into the greenback in order to capitalize on higher yields.
In the euro area, shares in Deutsche Bank (NYSE:DB) fell nearly 4% to 13.63 after the beleaguered German bank's second-quarter income plummeted nearly 100% on an annual basis. The downbeat earnings were released ahead of Friday's highly-anticipated results from the European Banking Authority's stress tests of the area's 51 largest banks.
Yields on the U.S. 2-Year fell four basis points to 0.722%, while yields on the U.S. 10-Year dropped five basis points to 1.503%. Over the last year, yields on 10-year U.S. Treasuries have plunged by more than 70 basis points.