No QE from Fed Means Stronger Dollar
The US dollar jumped today after the Federal Reserve decided, following the two-day policy meeting, to refrain from performing a new round of quantitative easing.
The Committee expects economic growth to remain moderate over coming quarters and then to pick up very gradually. Consequently, the Committee anticipates that the unemployment rate will decline only slowly toward levels that it judges to be consistent with its dual mandate. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook.
The FOMC said it would continue to do what it had promised earlier, specifically keeping the rates low till at least late 2014 and extending the average maturity of its security holdings. Yet that was not the announcement traders were hoping for.
A new round of QE is still possible as the Fed promised that it “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions”. But for now Forex market participants were disappointed and the dollar got a new boost.
EUR/USD dropped from 1.2299 to 1.2232 and GBP/USD slid from 1.5671 to 1.5542 as of 23:03 GMT today. USD/JPY climbed from 78.12 to 78.40.
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