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Positive words strengthen the Dollar

Positive words strengthen the Dollar

The Fed kept its asset purchases unchanged at $85 billion a month noting risks to the economy have now diminished considerably since the financial crisis. This is seen as an important signal that the FOMC will start considering a reduction in the pace of quantitative easing in the near future.

Based on the Fed’s economic forecasts, Chairman Ben Bernanke stated the FOMC would “expect, probably, to slow or moderate purchases sometime later this year and finish purchases somewhere in the middle of next year”.

Mervyn King’s last meeting as governor of the UK Monetary Policy Committee saw the members continue to be divided for the fifth month on the need for additional stimulus to the economy. The minutes revealed that King remained in the minority with a 6-3 vote in favour of no change in the level of QE.

The Fed’s hawkish statements were at odds with market expectations of a more “neutral” outcome, prompting USD gains against most of the G10 currencies. GBP/USD weakened by 2 cents and is trading around the $1.5430 level early this morning. Similarly, EUR/USD fell over 2 cents from yesterday’s high of $1.3420 to level around 1.3200.

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