EUR/USD: Dollar Seesaws Amid Choppy Trading After Fed Trims Rates by Half Point

Euro initially advanced after the news but later pared back gains and went underwater. But later recovered a bit and gained again.

• The EURUSD pair was seeking direction early Thursday after seesawing on Wednesday when the Federal Reserve axed interest rates for the first time in four years with a bold 0.5% trim. The reaction — some wild fluctuations up and down as the US dollar was getting mixed signals from traders. The euro-dollar pair initially shot up to $1.1190 but later eased down to $1.1070.
• Thursday morning forex speculators were more careful in their dealing with the volatile pair as they tried to actually figure out the way forward. What do lower interest rates suggest for the dollar’s outlook? On the one hand, they suggest easier borrowing conditions, meaning that US employment is expected to pick up as inflation stays on track toward the Fed’s 2% goal.
• But on the other hand, a reduction in interest rates chips away at the dollar’s ability to return a handsome yield on deposits. In other words, traders might decide to look elsewhere for above-average, or alpha, returns, naturally leaning toward risk assets with no guaranteed returns. In that context, the euro was trading at $1.1150 this morning with no other major events scheduled for the remainder of the week.