FOMC Rate Decision Gives Little Hope for Dollar Bulls

The Federal Open Market Committee (US Fed) left the US overnight lending rate unchanged yesterday at 5.25% for the 3rd consecutive time. The currency market had a knee jerk reaction as traders initially found the news to be pro Dollar but very quickly began to sell off as they continued to read through the Fed’s comments. Although the decision to leave rates unchanged was already fully priced into the market, everyone was eyeing in on the FOMC statement to see if they would continue to state their concern on core price inflation. The Fed added the line “Going forward the economy seems likely to expand at a moderate pace.” They also took out their concern of high commodity prices putting a strain the economy as oil prices have tumbled down over 25% from over $78 a barrel to around $60 today.

Within the last 24 hours we have seen the EUR/USD climb nearly 100 pips to ascend to a key resistance level of 1.2700. Traders are already pricing in another rate hike from the European Central Bank (ECB) by the year end bringing rates to at least 3.5% and futher narrowing EUR/USD interest rate differentials. Combined with that fact that recent US Economic releases have been fairly dismal, traders are struggling to find a reason to hold on to their Greenbacks. Do we see 1.30 in the near future?