EUR/USD Loses Gains, Dovish FOMC Announcement Doesn’t Help

EUR/USD was moving up at the start of Wednesday’s trading session but has reversed its movement at about 10:00 GMT. The currency pair was extremely volatile immediately following the release of the monetary policy statement from the Federal Open Market Committee but quickly resumed its downward movement. Disappointing US retail sales did not help either.

US retail sales rose by 0.6% in August, adjusted for seasonal variations. The increase was noticeably smaller than the one predicted by analysts — -1.1%. Furthermore, the previous month’s increase got a negative revision from 1.2% to 0.9%. (Event A on the chart.)

Business inventories edged up just 0.1% in July versus the forecast increase of 0.2%. The inventories shrank by 1.1% in the preceding month. (Event B on the chart.)

Crude oil inventories dropped by 4.4 million barrels last week, though remained far above the five-year average for this time of year. Analysts totally missed the mark with their forecasts of a 2.1 million barrel increase. The stockpiles expanded by 2.0 million barrels the week before. Total motor gasoline inventories decreased by 0.4 million barrels but also remained above the five-year average. (Event C on the chart.)

As was widely expected, FOMC kept the target range for the federal funds rate unchanged at 0%-0.25%. It also officially confirmed the policy of targeting inflation above 2% for some time, which Federal Reserve Chairman Jerome Powell announced a while ago:

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.

What was also very important, the Committee revealed in its updated projections that it is planning to keep interest rates extremely low until at least 2023. (Event D on the chart.)

Net foreign purchases were $10.8 billion in July, sharply down from the previous month’s value of $113.0 billion. That was a shockingly low number considering that economists were promising a figure in the neighborhood of $109.3 billion. (Event E on the chart.)

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Posted on Forex blog.