Jens Nærvig Pedersen, senior analyst at Danske Bank, notes that the EUR/USD pair initially rose above 1.1260 on the statement from the FOMC meeting and the news that the Fed had cut the IOER by 5bp.
Key Quotes
“Helping EUR/USD higher was an initial drop in the 2Y USD OIS swap rate of 5bp. However, once Fed Chair Powell got going on the press conference, the initial move more than reversed, sending EUR/USD back down to 1.1200.”
“The market took its cue from Powell’s comments that the Fed expects the inflation shortfall to be transitory and that the next move on rates could be either up or down.”
“We maintain our view that EUR/USD is headed back towards 1.13 in 3M – a move that would have less to do with Fed policy and more to do with further improvement in the Chinese economy including a US-China trade deal.”
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