Yesterday, the Fed officials left interest rates unchanged. This was expected by investors. What was not expected was the officials’ statement about inflation. As you recall, on Monday, we received data on the Personal Consumption Expenditure from the Bureau of Economic Analysis. This data is closely followed by the Fed and is usually a key indicator of inflation.
The data showed that the PCE was growing at an annual rate of 2%, which is the target of the Fed. In the statement accompanying the Fed decision, the officials introduced a new term, predicting that the inflation would reach the symmetric 2 percent objective over the medium term. After the decision was reached, the dollar fell against its peers but later recovered.
The euro on the other hand continued to slide against the major peers after data from the EU showed that the economy was slowing. The GDP peaked in December when it expanded by 2.8%. In the coming months however, it declined and remained stable at 2.7%. Yesterday’s data showed that the GDP slowed down to 2.5%. This data, combined with the zone’s low rate of inflation and wage growth will give the ECB more time to start the normalization process.
The pair is now trading at 1.1987, which is the lowest level since early January. This means that the pair has wiped all the gains made. As the EU economy goes through challenges, there is a likelihood that the pair will continue being under pressure.