The Federal Reserve released minutes of its last monetary policy meeting, revealing that the policy makers of the central bank were rather pessimistic and talked about potential need for additional stimulating measures. The reaction of the dollar was surprising: it rose sharply, reaching the highest level in two years versus the euro.
The minutes showed that the mood of the central bank members was far from being optimistic. The estimate for future US economic growth was revised down and the minutes suggested that there were plenty of downside risks for economic activity. Moreover, there were talks that additional easing may be warranted:
A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal. Several others noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the Committee’s longer-run objective.
Usually, the dollar reacts negatively on signs of quantitative easing. This time, though, the greenback just surged.
EUR/USD dropped from 1.2252 to 1.2237 as of 22:16 GMT today and its intraday minimum of 1.2212 was the lowest since July 1. GBP/USD was down from 1.5515 to 1.5501, falling from the maximum of 1.5577. USD/JPY advanced from 77.40 to 79.66.
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