Fed As Expected--Dollar Falls as Event Risk Passes

The greenback was treading water today awaiting the FOMC statement. The FOMC statement did not contain any surprises and the dollar has sold off in its aftermath. If anything the FOMC statement was a somewhat more dovish than some might have seeming to be more concerned about deflation. It did upgrade its assessment to the economy, which is not unexpected. It did extend its purchases of MBS and Agency bonds through the end of March 2010, which was also largely anticipated by the market. The debt markets have recovered from their earlier weakness as the FOMC repeated its assessment that the Fed funds target will likely remain low for an extended period of time. The equity market and commodities also seem to like the fact that the event risk is past and that the Fed is not about to tighten policy. This means the the cyclical forces that at work that favor risk taking remain in the key driver. This means further dollar declines against the major and EM currencies. It means the liquidity driven gains in commodities, like gold, continue. It would also seem favorable equities, but key levels near 1100 in S&P is being approached as is quarter end, as portfolios are adjusted.