EUR/USD (a 4-hour chart)
The dollar fell to a seven-month low as the Federal Reserve announced that it refrains from reducing monthly bond purchases by $ 85 billion and will continue to pour money into the U.S. economy in an attempt to stimulate its growth.
The pound strengthened to the eight-month high against the dollar after the Bank of England minutes showed that policymakers did not consider additional incentives. "The lack of restrictions and the lack of adjustment of the threshold unemployment sent the dollar down," Vasily Serebryakov, a currency strategist at BNP Paribas SA in New York, said. "This is one of the most dovish results." The pound rose 1.5 percent to $1.6146.
Inability of restriction is a big surprise and a negative factor for the dollar.
The Federal Reserve has decided to play it safe, keeping its asset purchase program. The decision caught the market by surprise, as only a small minority of economists was expected the bank to refrain from narrowing. When the decision was announced, shares rose to a record high, the price of gold rose sharply, bond yields fell and the dollar fell to multi-month lows against most major currencies. The value of the market reaction shows that the statement was completely unexpected, and how much the market is biased in the other direction. The U.S. dollar was traded aggressively and it is likely that the central bank's decision was the beginning of a new wave of risk appetite, which could mean further losses for the dollar. At this stage, there is a very good chance that Bernanke will leave the choice of reducing the leniency for his successor.