- The EUR/USD bounced from 1,1335 to 1,1365 after the Fed kept the rates at 4.5%,
- Market tensions remain high, but investors noticed a slight change in the tone of the Fed policy.
The EUR/USD moved within the intradic levels after the Federal Reserve (FED) maintained interest rates at 4.5% on Wednesday. The markets had generally predicted a flat Fed position for their decision of Mays, but the key to investors will be how much the Fed changes its position towards future feat cuts.
According to the Fed fees announcement, those responsible for policies have indicated that, although employment and economic activity in the US Market for imminent rates cuts at the high end, sending appetite for risk, contrary to intuition, towards the roof.
Read more news from the Fed here: The Fed leaves the policy rate without changes as expected
More to come …
5 minutes chart of the EUR/USD
US interest rates
Financial institutions charge interest rates on loans to borrowers and pay them as interest to savers and depositors. They influence the basic types of interest, which are set by central banks based on the evolution of the economy. Normally, central banks have the mandate to guarantee the stability of prices, which in most cases means setting as an objective an underlying inflation rate around 2%.
If inflation falls below the objective, the Central Bank can cut the basic types of interest, in order to stimulate credit and boost the economy. If inflation increases substantially above 2%, the Central Bank usually rises the interest rates of basic loans to try to reduce inflation.
In general, higher interest rates contribute to reinforce the currency of a country, since they make it a more attractive place for world investors to park their money.
The highest interest rates influence the price of gold because they increase the opportunity cost of maintaining gold instead of investing in an asset that accrues interest or depositing effective in the bank.
If interest rates are high, the price of the US dollar (USD) usually rises and, as gold quotes in dollars, the price of low gold.
The federal funds rate is the type to a day that US banks lend each other. It is the official interest rate that the Federal Reserve usually sets at its FOMC meetings. It is set at a fork, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the aforementioned figure.
Market expectations on the interest rate of the Federal Reserve funds are followed by the Fedwatch of the CME tool, which determines the behavior of many financial markets in the forecast of future monetary policy decisions of the Federal Reserve.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
