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Dollar Plunging as Fed Fails to Taper, Keeps Rates Near Zero for Longer

David Rodriguez

- The US Federal Open Market Committee (FOMC) announced it would NOT taper its Quantitative Easing purchases

- Markets expected the Fed to taper its $85 billion/monthly purchases by $5-$10bn

- Fed Funds rates expected to remain near zero until 2015

- The prospect of more Quantitative Easing for longer is DOLLAR BEARISH

The US Federal Reserved shocked Dollar markets as it unexpectedly left the pace of its Quantitative Easing purchases unchanged through today’s meeting. Bloomberg estimates showed that most expected the FOMC to cut its monthly debt purchases by $5-$10 billion per month, and indeed US bond yields had risen sharply ahead of the highly-anticipated announcement.

Yet the clear disappointment left the Dow Jones FXCM Dollar Index (ticker: USDOLLAR) sharply lower.

forex_us_dollar_plunges_as_Fed_fails_to_taper_body_Picture_5.png, Dollar Plunging as Fed Fails to Taper, Keeps Rates Near Zero for Longer

Source: FXCM Trading Station Desktop, Prepared by David Rodriguez

Markets now wait for the planned press conference scheduled for 18:30 GMT with Fed Chairman Ben Bernanke, where he will almost certainly discuss the FOMC’s decision and likely spark further volatility in US Dollar pairs.

The Federal Open Market Committee likewise released revised forward projections of growth, inflation, and interest rate trends. It was surprising to see that most FOMC members judged that they would begin to raise interest rates through 2015—disappointing some who expected a sooner move.

forex_us_dollar_plunges_as_Fed_fails_to_taper_body_Picture_6.png, Dollar Plunging as Fed Fails to Taper, Keeps Rates Near Zero for Longer

Source: US Federal Open Market Committee Forward Projections

The Dollar may continue recent declines based on the outright plunge in interest rate expectations, and indeed it now trades to fresh lows against the Euro, British Pound, and other major counterparts. Watch the Real Time News Feed for further updates on Bernanke’s scheduled press conference.

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

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