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The Federal Reserve did NOT announce QE. It was expected to announce QE tapering: reduction of monthly bond buys from the current level of $85 billion. Economic projections are also released. This is followed by a press conference by Ben Bernanke, which is also of huge importance.

The dollar was sliding just before the announcement, with EUR/USD getting closer to 1.34 and USD/JPY falling further below 99. The dollar is now crashing across the board.

Live blog of Ben Bernanke’s press conference

The statement

Tightening of financial conditions prevented the move  

Here”s a quote:

The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.

The Fed still “needs to see more evidence” for the recovery. And, it connects between the sequester and the decision not to taper. Here’s another quote, emphasis mine:

Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy. However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases.

The Fed also released updated economic forecasts. The Fed sees unemployment reaching the target of 6.5% in late 2014. Will it raise interest rates at around the same time?

The Fed lowered unemployment forecasts together with growth forecasts.

There was only one dissenter, Esther George, who preferred less stimulus. She is always the hawkish dissenter.

Currency reaction

  • Pair:  Before / After / Comments
  • EUR/USD:  1.3375 /1.3460 – major breakout. 1.3480 is resistance.
  • GBP/USD: 1.5973 /Above 1.60! This breakout has been brewing for some time. The pound is resilient.
  • USD/JPY: 98.88 /98.30 – The yen’s strength is quite limited.
  • AUD/USD:  0.9375 /0.9450 – The Aussie’s “risk currency” status certainly helps it make the major break.
  • USD/CAD : 1.03 /1.0250 – The reason for not tapering is not enough US growth – Canada needs US growth. So, the loonie’s gain is limited.
  • NZD/USD: 0.8273 /0.8315 – The kiwi got what it needed for another leg up. NZD is certainly strong.
  • USD/CHF: 0.9230 /0.9165

Background

The Fed was expected to begin tapering QE, at a scale of 10 to 15 billion dollars. There were also analysts who didn’t see the Fed tapering now. Given some improvement in the economy, fear of new bubbles (such as housing), hints from FOMC members and other reasons, tapering was expected now.

Here is the full preview:  QE Tapering Preview: 5 Reasons, 6 Scenarios and 7 Potential Currency Reactions

The move of the market depend not only on the decision but also on the next moves. We will here from Fed Chairman Ben Bernanke at 18:30 GMT. Stay tuned for a live blog of the event.