Yellen Lends USD a Hand

The FOMC statement essentially retained the bias to keep rates low for a 'considerable time' but Yellen added some hawkish hints in her press conference. The US dollar surged after the announcement while JPY lagged on risk appetite but the Fed wasn't the only reason why. In early Asia-Pacific trading, New Zealand GDP beat expectations. Our AUSUSD Premium trades issued prior to the Fed statement are in the money as are USDJPY, USDCAD, UDCHF and EURNZD.

The market whipsawed on the FOMC statement. In one sense, the Fed's guidance no longer commits to a considerable time of low rates and instead replaces it with 'patience'. But in the very next breath, the Fed spelled out that its intentions on rates are unchanged.

Yellen opened her press conference by reiterating the same point but later made a few hawkish hints. She said all Fed members see liftoff in 2015 and also emphasized that low inflation because of commodities will be transitory; she also brushed off low market-based measures of inflation.

The US dollar surged with USD/JPY gaining more than 200 pips to 118.75 in a broad dollar rally. The move may have been exaggerated by US dollar bulls returning to the fray. The euro also fell after the ECB's Coeure said there is a broad consensus to do more and that sovereign bonds are a 'baseline option.'

Mixed in was a sharp rebound in emerging markets. The ruble jumped nearly 10% and oil was slightly higher after an earlier surge.

The FOMC was the final major risk event of 2014 and that means position squaring and flows are likely to dominate the remainder of the year. Regardless of the near-term outlook from the Fed, the market still views the US and USD dollar as the best place to invest in 2015 so the dollar may continue to benefit.

The Fed's confidence in the economy is also good news for commodity currencies if it proves to be founded. The New Zealand dollar briefly rallied after Q3 GDP rose 1.0% q/q compared to 0.7% expected.