Weekly: FX – Large FX moves after the Fed

by: Georgette Boele

Ahead of the FOMC decision the US dollar was under pressure. Following the statement, the dollar softened further as the FOMC 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 subsequently 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. Bernanke’s statement and his responses in the Q&A session added fuel to the fire. He surprised friend and foe with his clear and open communication on the exit strategy, which accelerated the run-up in US yields and the rally in the USD across the board.