Source : Investing.com
EUR/USD
fell mildly on Wednesday reversing territory late in the session, after
the Federal Reserve met market expectations by approving its first
interest rate hike in nearly a decade.
The currency pair traded in a broad range between 1.0866 and 1.1011
before settling at 1.087, down 0.0042 or 0.39% on the session. With the
minor losses, the euro fell to its lowest level against the dollar in a
week. The dollar is up slightly against the euro since plunging by more
than 3% on December 3 after the European Central Bank rattled global
foreign exchange markets by only implementing limited easing measures to
its comprehensive asset-purchasing program.
EUR/USD likely gained support at 1.0538, the low from Dec. 3 and was met with resistance at 1.1496, the high from Oct. 15.
In a unanimous decision, the Federal Open Market Committee (FOMC),
lifted its benchmark Federal Funds Rate by 25 basis points to a range
between 0.25 and 0.50%. Before Wednesday's decision, the FOMC had held
short-term interest rates at near zero levels for 56 consecutive
meetings, a streak which dated back to December, 2008. In making its
decision, the FOMC judged that it has seen considerable improvements in
labor market conditions while it is reasonably confident that inflation
will rise over its 2% objective over the next several years. The FOMC
lowered short-term rates to a zero-bound range seven years ago in an
effort to stimulate the economy months after the start of the Financial
Crisis.
“This action marks the end of an extraordinary seven-year period
during which the federal funds rate was held near zero to support the
recovery of the economy from the worst financial crisis and recession
since the Great Depression,” Fed chair Janet Yellen said at a press
conference in Washington.
Although Yellen continued to express concern with the current pace of
inflation, she reiterated that she expects temporary factors
restraining price increases to abate when crashing oil prices stabilize
and a stronger dollar levels off. The dollar opened on Wednesday up by
approximately 8% against a basket of major currencies. A rate hike is
largely viewed as bullish for the dollar, as investors pile into the
greenback in order to capitalize on higher yields.
Despite instituting moderate easing measures
at its Governing Council meeting earlier this month, the ECB cut rates
on overnight deposits further into negative territory at minus 0.3%.
While Yellen said Wednesday that she doesn't think it will be a tool
that the Fed will need to use in the near future, she did not discount
the possibility of studying its effects.
The U.S. Dollar Index,
which measures the strength of the greenback versus a basket of six
other major currencies, surged by more than 0.80% to settle at 98.29.
Yellen also noted that although a number of countries throughout the
world have suffered slowing growth due to the rout in commodity prices,
she added that the Fed has seen a rebound in Emerging Markets of late.
On Wednesday, the iShares MSCI Emerging Markets Index (N:EEM) ETF gained 0.65 or 2% to 33.20.
Yields on the U.S. 10-Year inched up one basis point to 2.28%, while yields on the {{23693|Germany 10-Year} }rose four basis points to 0.68%.
