EURUSD stopped falling; the asset is recovering after the US Fed’s May meeting. The major currency pair reached stability after the Fed’s meeting. the current quote for the instrument is 1.0598. The US Fed’s meeting, which was highly anticipated, was over yesterday and the results were rather neutral. The regulator raised the benchmark interest rate by 50 basis points, up to 0.75-1.00%, just as expected. In the comments, the Fed said that a 75-point hike hadn’t been discussed yet.
So, what do we know? The regulator doesn’t exclude the possibility of a rate hike of more than 50 points, but is ready to react to the economic situation changes if necessary. The key factor here is low and stable inflation and the Fed has the tools to correct and control it. In the long-term, the FOMC will try to make the CPI return to 2%.
Monetary policymakers believe that inflation may drop and reach stability in the light of the monetary policy tightening and the strong labour market. We remind you that the CPI was 8.5% y/y in March, which is the highest reading since 1981, while the unemployment rate dropped to 3.8%. the current risks for inflation are consequences of the pandemic, huge expenses on energies, and geopolitical escalation. As for other measures to tighten the monetary policy, it became known that the Fed will start cutting its own portfolio, which is now estimated at $9 trillion, on 1 June.
Overall, one can say that the Fed’s tone and rhetoric were less “hawkish” than expected. The regulator sees the risks and wisely assesses them – the Fed is not going to make any impetuous decisions, but intends to use all possible monetary tools. All this reduces speculative demand for the “greenback” and allows the EUR to reach stability.