The US dollar jumped against other most-traded currencies today after the Federal Open Market Committee ended the third round of quantitative easing and issued rather hawkish statement after the decision.
As was widely expected, the FOMC decided to wrap up its asset-purchase program at this month’s meeting, not waiting for the next month. The major driver for such decision was signs of strength in the US labor market. The Committee explained:
Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.
There were concerns about market participants about subdued inflation, but the statement downplayed them, saying:
Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.
As for their future plans, US policy makers said that interest rates will likely remain low for a long period, yet added:
If incoming information indicates faster progress toward the Committee’s employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.
All in all, the statement was mostly hawkish, resulting in a strong rally for the US dollar that basically erased losses the dollar has experienced at the recent sessions.
EUR/USD slumped from 1.2733 to 1.2632 as of 20:58 GMT today, falling from the daily high of 1.2770. GBP/USD turned down from 1.6130 to 1.6012, retreating from the high of 1.6161, while USD/JPY jumped from 108.13 to 108.89, bouncing fro the low of 107.94.
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