Ahead of the FOMC decision the US dollar was under pressure. The first reaction was one of a lower US dollar as the statement made no mention of a reduction of the Fed’s bond purchases. But the upward revisions to the Fed’s growth forecasts in 2014 and prospects of a lower unemployment rate in 2013 and 2014 supported the US dollar across the board. The large run-up in US Treasury yields also underpinned the USD even versus the EUR and the JPY. There was a clear market reaction to Bernanke’s statement and his responses in the Q&A session. He surprised friend and foe with his clear and open communication, taking away uncertainty, which accelerated the run-up in US yields and the rally in the USD. Emerging market and commodity currencies fell under heavy pressure due to a combination of higher US yields and a higher US dollar, while stock markets moved lower. Although expectations of the tapering are mostly priced in, if US data start to improve in the near-term, there is a risk that markets will start to anticipate an earlier tightening of the Fed.