EURUSD recovered after Eurozone inflation and FOMC minutes
Minutes from the central bank’s Dec meeting showed that almost all Federal Reserve System policymakers thought the economy could grow more quickly because of fiscal stimulus under the Trump administration and many were eyeing quicker interest rate increases. Policymakers were clear that the outlook for fiscal easing remained uncertain, however it could, if implemented, stoke higher inflation which would lead the central bank to raise borrowing costs additional aggressively.
“About 1/2 the participants incorporated an assumption of more expansionary fiscal policy in their forecasts,” according to the minutes from the Dec 13-14 meeting, referring to the 17 policymakers who participated. “Almost all additionally indicated that the upside risks to their forecasts for economic growth had increased,” the minutes stated. U.S. short-term interest rate futures rose slightly once the release of the minutes but not enough to suggest altered expectations for the central bank’s rate hike path this year.
As we expected, higher-than-expected Eurozone inflation and FOMC minutes spurred profit-taking. The EUR/USD rose in Asia to 1.0575, extending its recovery from a 14-year low of 1.0340 touched on tuesday. The dollar’s retreat came as investors latched in gains from its two-month-old rally once Donald Trump won the U.S. presidential election. The near-term outlook is unclear. The key question is where the EUR/USD closes today. A white candle could signal a stronger recovery, but a shooting star will herald a continuation of downward move.