The release of the Federal Reserve’s latest policy statement led to a sharp spike lower in the US dollar, as the central bank maintained a neutral tone and repeated that they would keep rates “exceptionally low” for an “extended period.”
Nevertheless, the overall sentiment of the statement was optimistic, as the FOMC said that “economic activity had picked up” while conditions in the financial markets have “improved further” and that “activity in the housing sector has increased.” The FOMC also noted that household spending appears to be stabilizing, but that consumers still face serious headwinds from “ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.”
As far as quantitative easing goes, the central bank maintained that they would purchase a total of $1.25 trillion of agency mortgage-backed securities (MBS) and up to $200 billion of agency debt, which should be completed by the end of Q1 2010, while their purchases of $300 billion in Treasury securities will be completed by the end of October 2009.
As usual, the FX market’s response to the news has been very choppy, with the US dollar spiking lower against the euro and Japanese yen. This has prevented the JPY crosses from following the US stock markets higher, as both the S&P 500 and DJIA broke to fresh 2009 highs within 15 minutes of the news. Once price action settles down, the news may ultimately bode best for FX carry trades as Asian session traders may see the policy statement as an indication of better prospects for global growth going forward. When it comes to pairs like EUR/USD, though, moves may be retraced.
[I]Source: FXtrek IntelliCharts[/I]
[I]Source: FXtrek IntelliCharts
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Official press release from the Federal Reserve: FOMC Statement