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U.S. FOMC Maintains Benchmark Bank Rate at 0.25%

U.S. FOMC Maintains Benchmark Bank Rate at 0.25%

2012-01-25 19:07:00
Tzu-Wen Chen, Technical Strategist

THE TAKEAWAY: [U.S. FOMC Maintains Benchmark Bank Rate at 0.25%, Unlikely to Rise Until 2014] >[USD Weakens Against AUD, EUR]

The Federal Open Market Committee announced its decision today to leave the benchmark bank rate unchanged at 0.25 percent and maintain its target interest rate at 0 to 0.25 percent. The last rate change occurred in December, dropping from 1.00 to 0.25 percent. It is unlikely that the Federal Reserve will raise rates until at least 2014, extending its time frame by at least a year and a half.

The U.S. economy has been expanding moderately despite some slowing in global growth. Household spending continues to increase, while growth in business fixed investment has slowed and the housing sector remains depressed. Although some indicators point to some improvement in the labor market conditions, the unemployment rate remains elevated. Inflation in recent months has been subdued, and longer-term inflation expectations remain stable. Over the coming quarters, the FOMC expects to see a modest rate of economic growth and anticipates that inflation will run at levels at or below those consistent with the Committee’s dual mandate.

The FOMC expects to maintain a highly accommodative stance for monetary policy in the medium term, stating that “economic conditions – including low rates of resource utilization and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014”. The FOMC also decided to continue its maturity extension program and reinvestment policy as was announced in September.

AUD/USD 1-minute chart: 25 January 2012

U.S._FOMC_Maintains_Benchmark_Bank_Rates_at_0.25_Percent_body_Picture_7.png, U.S. FOMC Maintains Benchmark Bank Rate at 0.25%

Chart created using Strategy Trader Prepared by Tzu-Wen Chen

The markets viewed the FOMC’s announcement as “dovish”, allowing a third round of quantitative easing to remain on the table for some time this year. Immediately after the announcement, the Australian dollar jumped by 9 pips and continued to rally towards fresh highs of around 1.05900 at the time of this report.

EUR/USD 1-minute chart: 25 January 2012

U.S._FOMC_Maintains_Benchmark_Bank_Rates_at_0.25_Percent_body_Picture_10.png, U.S. FOMC Maintains Benchmark Bank Rate at 0.25%

Chart created using Strategy Trader Prepared by Tzu-Wen Chen

A similar market reaction was seen with the Euro, as the Euro surged 20 pips against the U.S. dollar immediately following the announcement, and continued to strengthen towards 1.31000 at the time of this report.

--- Written by Tzu-Wen Chen DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.