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Euro Summary: Bernanke Remains Mum

Posted by Joseph Trevisani on Jul 31, 2013 5:57:00 PM

The euro opened in New York at 1.3274 at 8:00 am ET having traded between 1.3246 and 1.3300 in Tokyo and London. Initial U.S. statistics, ADP private payrolls at 8:15 am and second quarter GDP and prior revisions at 8:30 am, were better than expected, 200,000 vs. 180,000 for payrolls and 1.7% vs. 1.0% for GDP. First reaction dropped the euro to its low at 1.3210 at the GDP release and it stayed below 1.3240 until just after 10:00 when a large buy order picked the currency up 40 points to just over 1.3260 in 10 minutes. Steady buying interest and the failure to reach 1.3200 kept the euro moving slowly higher throughout the late morning. A quick flurry of purchasing at the London close pushed the euro to 1.3299 but it dropped back to the mid-80s after the European close at noon. At this point the euro had faltered at 1.3300 for four straight sessions.

The Federal Reserve monetary policy statement at 2:00 pm produced notable volatility with the euro racing through stops at 1.3305 and 1.3320 to reach 1.3337 in the same minute as the FOMC release. Though within 15 minutes the euro was back to 1.3265, the pair climbed sharply again driving back to the day's high at 1.3345 at 3:00 pm and then almost as sharply slipped back to 1.3300, where with a few twitches higher and lower it closed. 

The FOMC statement was less optimistic on the economy than most analysts expected. It did not alter the quantitative easing program but it dropped the central bank's assessment of the economy to 'modest' from 'moderate', and added a comment about dis-inflation. “The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance...".  The Fed has consistently said that its quantitative easing decision will depend on continued economic improvement. Today's statement probably reduced the odds of a September reduction in the program.

The ECB rate announcement tomorrow at 7:45 am should keep the market in check until then.



Chart: Bloomberg

ScreenHunter 1532 Jul. 31 18.51


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