Dollar Dives on Fed Doves

The Fed delivered the shock of the year with no taper and no clear plans to remove stimulus. The dollar crumbled on the headlines with AUD making the most gains as shorts were squeezed. Markets are closed in China and South Korea for the rest of the week but some BOJ speeches are on the docket as markets digest the dollar rout.  

Bernanke cemented his status as perhaps the most dovish central bank of all time by continuing the Fed's asset purchase program at $85 billion per month and backing away from timelines to end QE and raise rates.

The dollar dove on the FOMC statement and continued to fall in Bernanke's press conference. EUR/USD broke above 1.35, cable soared past 1.61 and AUD/USD climbed above 0.95. Gold was also a massive winner, climbing from below $1300 earlier in the day to $1365.

Combined with the likely appointment of Yellen it will dawn on market participants that QE could be extended longer than anyone believes. The data dependant clause from the Fed now clearly means a substantial improvement in the economy, not muddling along with +160K jobs and 0.3% monthly growth in retail sales.

Bernanke continue to emphasize the drag from US fiscal policy and a breakthrough on that front is the dollar's best bet. Given Congress' track record, that's a longshot.

The calendar is light in the upcoming session but the market will continue to wrangle with the implications of the Fed decision. The BOJ will be displeased with the fall in USD/JPY and comments from BOJ member Kiuchi at 0130 GMT and Kuroda at 0635 GMT will be interesting.