Consensus Right on FOMC, Dollar Slumps

The FOMC statement was in line with the consensus expectations, officials have left the door open to additional easing if necessary. Even if the staff revised down GDP and inflation forecasts and unemployment up, the Fed sticks with its assessment that the conditions are in place for somewhat stronger growth. The Fed did tweak its inflation assessment noting that recent data is "somewhat below" the desired level. The exceptionally low rates for extended period of time mantra remains intact. Hoenig continued to dissent but failed to convince others. Those that expect the Fed to engage in an substantial round of long term asset purchases will take the Fed statement in stride and won't substantially alter their views.

I thought the consensus view would be dollar negative, through the curent interest rate differentials. The US 2-year yield seem to be the biggest mover to the downside. We look for the euro to continue to rise toward $1.3335 initially. The dollar is also trading at its lowest levels against the yen since intervention last week. Canadian dollar is lagging in the move against the dollar.