EUR/USD slides below 1.2150 after Fed opts not to tweak QE programme

• EUR/USD dropped in the aftermath of the FOMC policy announcement after the bank didn’t tweak its QE programme.
• FOMC Chair Jerome Powell speaks in the post-announcement press conference at 19:30GMT.

EUR/USD has dropped in the immediate aftermath of the FOMC monetary policy announcement, with the pair dropping from around 1.2170 to below 1.2730. On the day, the pair now trades with losses of around 0.2% or 20 pips.

FOMC opts not to change size or composition of asset purchases

The FOMC unanimously voted to hold the federal funds target range at 0.0-0.25% as expected. The bank also opted not to change the size or composition of its asset purchase programme and committed to continuing to buy $80B per month in US treasuries as well as $40B per month in agency-backed securities until “substantial further progress has been made” on its maximum employment and price stability goals.

Some had expected that the FOMC might opt to increase the weighted average maturity of its asset purchase programme (meaning start purchasing bonds of longer duration), or even to increase the monthly pace of purchases from current levels; the decision not to do so was seemingly taken as “hawkish” by markets and US bond yields jumped higher and the yield curve steepened, explaining the mild bid in USD.

A few other aspects of the announcement might also have been taken as slightly hawkish;

1) According to the updated dot-plot, though the median forecast of FOMC members is for interest rates to stay at 0.0-0.25% through 2023, one policymaker now sees lift-off occurring in 2022 and five in 2023, more hawkish than the last dot-plot which had only four FOMC members seeing lift-off prior to 2023.

2) The new forecasts see US GDP declining less in 2020 than the September forecasts and growing more quickly in 2021 (a reflection of vaccine optimism).

Attention now turns to FOMC Chairman Jerome Powell, who is scheduled to give further colour on the thinking behind the FOMC’s decision in a press conference starting at 19:30GMT.