The euro opened in New York (8:30 am) at 1.3405 having wandered in a 20 point range, 1.3395 to 1.3415, through Tokyo and London waiting for U.S. second quarter GDP.
In the event second quarter annualized GDP came in at 4.0 percent, considerably stronger than the 3.0 percent survey forecast, allaying imediate concerns that the ecoomy was slipping toward another recession.
First quarter GDP received a boost in the annual GDP revisions moving from -2.9 percent to -2.1 percent. But with two more revisions to the second quarter pending, August 28th and September 26th and the first quarter's -2.8 percent collapse fresh in mind (initial 0.1%, first revision -1.0%, second revision-2.9%; todays adjustment to 2.1% was the Bureau of Economic Analysis' annual reconfiguration), the actual state of econmic activity in the second is far from concluded.
The euro immediately dropped about 30 points to 1.3370 snapped back to 1.3390 and then settled into a 16 point range, 1.3367 to 1.3383 for five hours awating the FOMC statement at 2:00 pm.
The FOMC ststement was status-quo on policy, securites purchases were reduced another $10 billion to $25 billion and the fed funds rates will continue below normal levels for some time. Nothing else had been expected. The economic analysis was slightly more positive than the June 18th statement. The reference to elevated unemployment was dropped, household spending and business investment advanced and the likelyhood of inflation "running persistently below 2 percent has diminished somewhat."
Treasury yields were sharply higher on the release, with the 10-year generic ending up 10 basis points at 2.56 percent, its highest close since July 7th.
In the two minutes after the release the euro gyrated 25 points back and forth from 1.3370 to 1.3395, but traders quickly choose a mild profit-taking response, taking the pair to 1.3405 back to 1.3387 and then a two an a half hour coast between 1.3391-1.3397 into the close.
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