Investing.com — The euro rallied sharply against the U.S. dollar, following the Federal Reserve’s removal of patience from its minutes on Wednesday, providing a signal that it will likely raise interest rates at some point in 2015.
Federal Reserve chair Janet Yellen said while the Fed has not decided on the timing of a rate hike, it is possible it could come at any Federal Open Market Committee meeting this year after the FOMC concludes its next meeting in April.
Following the release of the Fed’s statement around 2 p.m. EST, the dollar plummeted against the euro, moving well below its high of 1.059 in U.S. morning trading. EUR/USD reached 1.065 as investors awaited the release of the statement, before surging more than 2% to a daily-high of 1.093 shortly after markets closed.
The pair likely received support at 1.05 the low from Mar. 13 and resistance at 1.18 the high from mid-January.
At the same time, the U.S. Dollar Index, which measures the strength of the greenback versus six other major currencies, plunged to 96.75 at the market’s close. The index reached 99.68 minutes before Yellen’s statement was released.
The yield on U.S. 10-Year Treasuries also sunk more than 6% to 1.918, well below its level last month when the spread between the 10-year and the 10-Year German bunds reached a 25-year high. Yields on short-term sovereign debt dove even further, as U.S. 2-Year Treasuries dropped by nearly 17% to 0.557.
The euro had been in freefall since Mar. 6 when the U.S. Bureau of Labor Statistics released better than expected jobs data, indicating that more than 290,000 jobs had been created in the previous month while employment dropped to 5.5%. The report coincided with the beginning of the European Central Bank’s €60 billion a month bond buying program that started three days later. In spite of Wednesday’s rally, the euro is still down against the dollar by more than 10 cents since the end of 2014.
When asked to describe the effects of an appreciating dollar on the U.S. economy, Yellen noted that the stronger dollar is holding back inflation which the Fed has set a target goal of 2%.
“I don’t have a quantitative estimate to offer, but I certainly expect net exports to serve as a notable drag this year on the outlook,” she said.
Yellen reiterated that the Fed is keeping a close eye on the global markets as it decides how soon it will wait before raising rates.
“We realize that our own policies affect performance in the rest of the world. And that performance in other countries has an influence on us,” Yellen said. “I think a strong U.S. economy certainly is something that is good for other countries, as well.”
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