Euro jumps after Fed pause

• Euro rises as Fed holds rates
• German Manufacturing PMI declines

The euro has posted sharp gains on Thursday. In the North American session, EUR/USD is trading at 1.0628, up 0.56%.

US dollar loses steam after Fed pause

There wasn’t any drama ahead of the Federal Reserve’s meeting on Wednesday. The decision to hold rates for a second successive time was virtually certain, but nevertheless, the financial markets had a strong reaction. US equity markets rose and the US dollar fell against all of the majors, with the euro posting sharp gains today.

The reason for equities rising and the dollar dipping was that the markets were unconvinced by Jerome Powell’s attempt to sound hawkish on inflation. Powell trotted out the usual script that the Fed stood ready to raise rates, but at the same time, the Fed statement acknowledged that “tighter financing and credit conditions” could dampen inflation. This was likely a reference to the recent rise in US Treasuries, which has increased borrowing costs and could push inflation lower without the Fed having to raise rates.

If Powell was trying to sound hawkish, the markets weren’t buying it. Future markets have priced in another pause in December and expectations are that the Fed is done with hiking, despite Powell’s assertion to the contrary. The US dollar is down against all of the majors and US stock markets were strongly higher on Wednesday.

German Manufacturing PMI declines

Germany’s Manufacturing PMI was revised to 40.8 in October, almost unchanged from the preliminary reading of 40.7 and up from 39.6 in September. Manufacturing remains in deep contraction and is weighing on the German economy, which is expected to contract by 0.4% in 2023. This means that Germany, the largest economy in Europe, will be the only G-7 country not to record growth this year.

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EUR/USD Technical

• EUR/USD is testing resistance at 1.0595. Above, there is resistance at 1.0664
• 1.0495 and 1.0426 are providing support

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