EUR/USD hits seven-week highs ahead of Federal Reserve minutes

The euro rose to a seven-week high against the US dollar before the Federal Reserve Bank releases the minutes of its most recent meeting on policy later in the day amid speculation Fed officials may not back further stimulus cuts as the US economic recovery seems to lose momentum.

EUR/USD touched a seven-week-high at 1.3774 at 01:30 GMT, after which the pair erased daily gains to trade little changed at 1.3755 at 09:04 GMT, losing 0.03% for the day. Support was likely to be found at February 18th low, 1.3695, while resistance was to be met at January 2nd high, 1.3775.

The Federal Reserve is scheduled to release minutes of its January policy meeting later today as market players are looking for clues about the pace and the size of future stimulus cuts, after manufacturing activity in the state of New York trailed estimates and US factory production decreased by the most since May 2009.

“The dollar is being sold especially against the euro,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York, cited by Bloomberg. “We need to remain wary of the downside risks to U.S. data. Investors will be looking for Fed’s view on the economy.”

Janet Yellen, in her first testimony to Congress as head of the Fed, said on February 11, the central bank will “likely reduce the pace of asset purchases in further measured steps at future meetings”, but also underscored that the recovery in the labor market in the US is “far from complete”.

The Fed Chairman also reiterated that the pace of cutting back Fed stimulus was not on a “preset course”.

Yesterday, the US dollar sharply lost ground against its major peers, after it became clear that manufacturing activity in the region of New York suddenly decreased in February, after a month ago it registered its highest level since May 2012. According to the results in a survey by the Fed, the New York Empire Manufacturing Index, which gauges business conditions in the region, fell to a reading of 4.48 in February from 12.50 in January. Experts had expected a considerably lesser decline of the index, to 9.50.

The gauge of new orders plunged into negative territory this month, after reaching a two-year peak in January. The gauge of deliveries also plummeted, reaching a value of 2.1 in February, from 15.5 in January.

A report by the Federal Reserve revealed on Friday that US factory production decreased in January by the most since May 2009, adding to signs that the recent severe weather conditions weighed on the US economy.

The Fed Chairman Janet Yellen cited the harsh winter and the unseasonably low temperatures as probable reasons for the weaker-than-expected US economic data, as the cold weather has affected activity in the labor market and elsewhere.

The central bank announced in December that it will pare monthly bond-buying purchases by $10 billion, after which it decided on another reduction of the same size at the meeting on policy in January, underscoring that labor market indicators, which “were mixed but on balance showed further improvement”, while nation’s economic growth has “picked up in recent quarters.”

Meanwhile, euros demand was pressured yesterday after a gauge that tracks investor’s confidence in the largest euro zone economy, Germany, fell for a second month in February. A report by the ZEW Center for European Economic Research revealed its index of investor and analyst expectations, declined to 55.7 in February from 61.7 in the previous month. The index, aimed to forecast economic developments six months in advance, reached a seven-year high of 62.0 in December.

However, the German current conditions sub-index improved to the strongest level in 2-1/2 years, reaching 50.0 in February from 41.2 a month ago, outstripping analysts’ expectations for an increase to 44.0.

The euro zone ZEW economic sentiment also decreased to 68.5 in February from 73.3 in the previous month, confounding analysts’ projections for an increase to 73.9.

A separate report by the European Central Bank, however, revealed that the seasonally adjusted current account surplus of the euro area widened to 21.3 billion euros in December, the most since March 2013.

Elsewhere, AUD/USD fell to a session low at 0.8991 at 1:23 GMT, after which consolidation followed at 0.9020, losing 0.06% for the day. Support was likely to be found at February 14th low, 0.8981, while resistance was to be encountered at February 18th high and also the highest level since January 13th, 0.9081.