3 Reasons Why the Dollar Isn’t Crashing Post QE3

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The QE3 announcement was supposed to weaken the dollar. However, the reaction in the dollar is limited.

USD/JPY is higher and the spike in EUR/USD was short lived and limited. Why?

Update:  Follow a live blog of Ben Bernanke’s press conference

  • A classic: buy the rumor, sell the fact behavior. It was priced fully priced in, especially with USD/JPY. The Jackson Hole speech and the weak Non-Farm Payrolls certainly pushed expectations higher.
  • Untwist of yield curve: The Fed announced the continuation of Twist, but no new buys of long term bonds. The new open ended QE goes towards MBS to support housing – not bonds. Higher US yields support the US dollar. Yet again, this is especially true with USD/JPY, but also other currencies are impacted.
  • Waiting for Bernanke: The chairman will talk at 18:15 GMT and markets are awaiting his words, especially about future action. The dollar could still fall later on. Ben Bernanke’s worries about the economy could push expectations for endless QE3 or QE4 and hurt the dollar.

Further reading: No More Risk Positive Catalysts from the Euro-zone in Coming Weeks

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About Author

Yohay Elam – Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I’ve accumulated. After taking a short course about forex. Like many forex traders, I’ve earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I’ve worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.