Fed Feeds the QE Fire

The FOMC decided to buy $85 billion per month in Treasuries and MBS, as expected. The Swiss franc was the top performer while the yen lagged badly in a volatile day of trading. Markets will get a chance to digest the FOMC decision with Australian consumer sentiment and inflation expectations are the lone items on the Asia-Pacific calendar. Latest post-FOMC Premium Insights include 2 EURUSD trades and 2 EURJPY trades. See below for detail.

The Fed added $45 billion a month in Treasury purchases to the existing $40 billion MBS program in Wednesdays decision. The fresh funds will replace Operation Twist, which expires at year-end.

The Fed had largely telegraphed the decision but there was some speculation that purchases would be less than $45 billion.

After the announcement the US dollar fell broadly. The euro touched 1.3097 and the Australian dollar hit 1.0586. Despite the broad anti-dollar sentiment, USD/JPY continued to rise, hitting the highest since March. That could be a sign of willingness to buy yen crosses ahead of Sundays election.

Another interesting development was the inability of gold to rally despite a weak dollar and additional printing. Gold momentarily rose to $1723 shortly after the decision but has plunged back down to $1709.

Bernanke held a press conference after the decision and the Fed lowered its economic forecasts but there was nothing surprising. Late in the day, risk trades pares some of their losses.

Continued consolidation has been the theme in early Asia-Pacific trading and that is likely to continue. Australia will be in focus with Westpac consumer confidence at 2330 GMT. The consensus estimate is for a 4.1% decline. A half hour later the Melbourne Institute releases inflation expectations; the prior reading was +2.2%.

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-AB