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It looks like dollar bulls were anything but impressed by the FOMC statement which lacked conviction on the balance sheet runoff and future rate hikes.

  • Fed kept interest rates unchanged as expected
  • FOMC: Balance sheet unwinding to start “relatively soon”
  • FOMC to reinvest holdings for the time being
  • FOMC: Job gains have been solid, overall inflation declined
  • FOMC: Near-term risks to the economy remain “roughly balanced”
  • U.S. new home sales up from 605K to 610K vs. 615K
  • U.S. crude oil inventories down by 7.2M barrels vs. 3.3M forecast

Major Events/Reports

Cautious FOMC statement

As expected, Fed head Yellen and her fellow policymakers agreed to keep interest rates on hold at 1.00-1.25% in their latest meeting and made a few key changes to their accompanying statement to account for the latest batch of economic reports.

First, the good news. The central bank judged that job gains have been solid, an upgrade from their earlier assessment that hiring has moderated. After all, the June NFP report was much stronger than expected and represented a solid rebound over the previous figures. Policymakers also noted that household spending and business investment have continued to expand, repeating that near-term risks to the economy appear roughly balanced.

As for the not-so-good news, most forex junkies took notice of the fact that the Fed changed their tone on inflation from June’s “[I]nflation has declined recently and, like the measure excluding food and energy prices, is running somewhat below 2 percent” to:

On a 12-month basis, overall inflation and the measure excluding food and energy prices have declined and are running below 2 percent.

Recall that June CPI figures have missed expectations so many interpreted this to mean that the Fed is no longer seeing downside price pressures as transitory.

When it comes to the balance sheet runoff, Fed officials simply said that they would start unwinding “relatively soon” instead of providing an actual date. Again, this was also interpreted as a cautious remark which would give policymakers time to adjust their runoff schedule depending on economic reports.

U.S. equities still closed in the green as stock traders have been busy paying closer attention to upbeat earnings, but Treasury yields tumbled:

  • Dow 30 index closed 97.58 points up to 21,711.01 (+0.45%)
  • S&P 500 index is up 0.70 points to 2,477.83 (+0.03%)
  • Nasdaq is up 10.57 points to 6,422.75 (+0.16%)
  • U.S. 10-year yield is down to 2.280% (-0.08%)
  • U.S. 30-year yield is down to 2.888% (-0.09%)

If you want to read between the lines yourself, I highly suggest you review the official statement or stay tuned for my buddy Forex Gump’s blow-by-blow coverage and analysis.

Crude oil up on EIA report

As hinted at by the better-than-expected API figure, the official reading from the Energy Information Administration also showed a larger than expected draw in crude oil stockpiles.

Inventories were down 7.2 million barrels, more than twice as much as the estimated reduction of 3.3 million barrels. Even though it was still lower than the API draw of more than 10 million barrels, this also marks the fourth consecutive weekly drop in EIA stockpiles, chucking oversupply concerns out the window and boosting WTI crude oil to $48.48 per barrel.

Major Market Mover(s):

USD

The Greenback was actually off to a good start ahead of the FOMC meeting but it eventually coughed up its recent gains and more when dollar bulls were unimpressed.

EUR/USD popped up from a low of 1.1631 to a high of 1.1749, GBP/USD jumped to 1.3122, USD/CHF tumbled from .9590 to test the .9500 level, and USD/JPY is down to the 111.00 handle.

Watch Out For:

  • 2:30 am GMT: Australian import prices q/q (0.7% expected, 1.2% previous)