Forex - Dollar drops as Fed leaves stimulus program unchanged

The dollar plummeted against most major currencies on Wednesday after the Federal Reserve said it was making no changes to its USD85 billion monthly bond-buying program.

Many investors were expecting the U.S. central bank to trim the amount of bonds it purchases a month at least by USD10 billion.

In U.S. trading on Wednesday, EUR/USD was up 1.07% at 1.3501.

The Federal Reserve on Wednesday left its key benchmark lending target, the fed funds rate, unchanged at 0.25% and kept its USD85 billion monthly asset-purchasing program in place. 

The Fed said the economy was showing signs of improvement though it still faced enough headwinds to prompt monetary authorities to hold off on tapering its asset purchases, which weaken the dollar to spur recovery. 

The Fed said in a statement that household spending and business fixed investment have improved, while the housing sector has been strengthening as well.

However, mortgage rates have risen, while U.S. fiscal issues are restraining economic growth.

"Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," the Fed said. 

"However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Fed said, adding it would continue to buy USD40 billion a month in mortgage-backed securities and USD45 billion in longer-term Treasury securities.

"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."

Fed Chairman Ben Bernanke told a press conference afterwards that he felt past and present rounds of asset purchases have been effective, though he added government inability to tackle debt and deficits, including calls in Congress to shut down the government due to fiscal and policy disputes, concerned monetary authorities.

Market participants largely ignored Commerce Department data revealed that U.S. building permits fell by 3.8% to 918,000 units in August from 954,000 in July. Analysts were expecting building permits to fall by 0.4% to 950,000 units last month. 

The Commerce Department added that U.S. housing starts rose 0.9% to 891,000 units last month from a downwardly revised 883,000 units in July, missing expectations for a 3% increase to 917,000 units. 

Elsewhere, the greenback was down against the pound, with GBP/USDup 1.25% at 1.6102.

The dollar was down against the yen, with USD/JPY down 0.99% at 98.14, and down against the Swiss franc, with USD/CHF trading down 1.26% at 0.9144.

The dollar was down against its cousins in Canada, Australia and New Zealand, with USD/CAD down 0.78% at 1.0216, AUD/USD up 1.36% at 0.9482 and NZD/USD trading up 1.37% at 0.8351.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 1.12% at 80.39.

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Forex - GBP/USD soars as Fed holds off on tapering stimulus

The pound shot up to eight-month highs against the dollar on Wednesday after the Federal Reserve left interest rates unchanged and surprised many by keeping its USD85 billion monthly bond-buying program in place as well.

Many market watchers were expecting the Fed to announce plans to trim the amount of bonds it buys each month, a stimulus tool known as quantitative easing that spurs recovery by driving down interest rates, weakening the greenback in the process.

In U.S. trading on Wednesday, GBP/USD was trading at 1.6112, up 1.31%, up from a session low of 1.5893 and off from a high of 1.6122.

Cable was likely to find support at 1.5885, Tuesday's low, and resistance at 1.6188, the high from Jan. 17.

The Federal Reserve on Wednesday left its key benchmark lending target, the fed funds rate, unchanged at 0.25% and kept its USD85 billion monthly asset-purchasing program in place. 

The Fed said the economy was showing signs of improvement though it still faced enough headwinds to prompt monetary authorities to hold off on tapering its asset purchases, which weaken the dollar to spur recovery. 

The Fed said in a statement that household spending and business fixed investment have improved, while the housing sector has been strengthening as well.

However, mortgage rates have risen, while U.S. fiscal issues are restraining economic growth.

"Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," the Fed said. 

"However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Fed said, adding it would continue to buy USD40 billion a month in mortgage-backed securities and USD45 billion in longer-term Treasury securities.

"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."

Elsewhere, the pound enjoyed support after the release of the minutes of the Bank of England's most recent meeting, which showed that policymakers voted unanimously in favor of keeping the benchmark interest rate on hold at 0.5% and the size of the bank’s asset purchase facility unchanged at GBP375 billion.
The pound, meanwhile, was up against the euro and up against the yen, with EUR/GBP down 0.24% at 0.8378 and GBP/JPY up 0.23% at 158.02.

On Thursday, the U.S. is to release the weekly report on initial jobless claims, as well as the Philly Fed manufacturing index and data on existing home sales.

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Federal Reserve leaves rates unchanged, holds off on tapering stimulus

The Federal Reserve on Wednesday left its key benchmark lending target, the fed funds rate, unchanged at 0.25% and kept its USD85 billion monthly asset-purchasing program in place. 

The Fed said the economy was showing signs of improvement though it still faced enough headwinds to prompt monetary authorities to hold off on tapering its asset purchases, which weaken the dollar to spur recovery. 

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.91% at 80.56. 

The news surprised many investors who were expecting the Fed to trim its monthly asset purchases by USD10 billion or even more.

The Fed said in a statement that household spending and business fixed investment have improved, while the housing sector has been strengthening as well.

However, mortgage rates have risen, while U.S. fiscal issues are restraining economic growth.

"Taking into account the extent of federal fiscal retrenchment, the Committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program a year ago as consistent with growing underlying strength in the broader economy," the Fed said. 

"However, the Committee decided to await more evidence that progress will be sustained before adjusting the pace of its purchases," the Fed said, adding it would continue to buy USD40 billion a month in mortgage-backed securities and USD45 billion in longer-term Treasury securities.

"Taken together, these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."

The Fed adheres to a dual mandate of keeping inflation rates in comfort zones while keeping unemployment rates at optimal levels.

The Fed added it would keep the fed funds rate at current levels as long as unemployment rates remain above 6.5% and while inflation projections do not threaten to rise more than a half percentage point above the 2% percent longer-run goal.

The U.S. unemployment rate currently stands at 7.3%.

The institution added that despite fluctuations in energy prices, inflation continues to run below longer-run objectives though longer-term inflation expectations remain stable.

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Dollar lower vs. yen ahead of Fed, BoE minutes lift pound

The dollar slipped lower against the yen on Wednesday ahead of the Federal Reserve’s much anticipated policy decision later in the day, while the pound was boosted higher following the release of the Bank of England’s September meeting minutes.

During European late morning trade, the dollar was close to session lows against the yen, with USD/JPY down 0.27% to 99.85.

Investors were looking ahead to the outcome of the Fed’s two-day policy meeting, due to conclude later Wednesday, amid expectations that the bank would announce plans to start reducing its USD85 billion-a-month asset purchase program.

The dollar remained under pressure after a recent series of soft economic data, including the latest U.S. jobs report, saw investors reassess expectations over how much the Fed will cut its stimulus program.

The pound hit fresh eight-month highs against the dollar, with GBP/USDadvancing 0.37% to 1.5962 after the latest BoE minutes showed that no policymakers believed more stimulus is necessary at present.

Policymakers voted unanimously in favor of keeping the benchmark interest rate on hold at 0.5% and the size of the bank’s asset purchase facility unchanged at GBP375 billion.

The minutes showed that policymakers believe the economic recovery in the U.K. is taking hold and outlined signs of a recovery in the euro zone.

The central bank also reiterated its forward guidance that it will not automatically raise interest rates when the U.K. unemployment rate falls below 7%.

Elsewhere, the euro inched lower against the dollar, with EUR/USDdipping 0.06% to 1.3350.

The single currency continued to be supported after data released on Tuesday showed that the closely watched ZEW index of German economic sentiment rose to the highest level since April 2010 in September, on the back of the improved economic outlook for the euro zone.

The dollar was almost unchanged against the Swiss franc, with USD/CHFinching up 0.01% to 0.9260.

Elsewhere, the greenback was rangebound against its Australian, New Zealand and Canadian counterparts, with AUD/USD edging up 0.04% to 0.9358, NZD/USD slipping 0.15% to 0.8225 and USD/CAD inching up 0.04% to 1.0300.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, edged down 0.05% to 81.26. 

The U.S. was to release data on building permits and housing starts later Wednesday, ahead of the Fed policy announcement.

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GBP/USD hits fresh 8-month highs after BoE minutes, Fed ahead

The pound rose to fresh eight-month highs against the dollar on Wednesday after the latest Bank of England minutes showed that no policymakers believed more stimulus is necessary at present, while investors awaited the outcome of this week’s Federal Reserve meeting later in the trading day.

GBP/USD hit 1.5963 during European morning trade, the highest since January 18; the pair subsequently consolidated at 1.5961, gaining 0.36%.

Cable was likely to find support at 1.5884, Tuesday’s low and resistance at 1.6038, the high of January 17.

The minutes of the BoE’s September meeting showed that policymakers voted unanimously in favor of keeping the benchmark interest rate on hold at 0.5% and the size of the bank’s asset purchase facility unchanged at GBP375 billion.

The minutes also indicated that policymakers believe the economic recovery in the U.K. is taking hold and outlined signs of a recovery in the euro zone.

Over the month the evidence was consistent with a recovery at least as strong as that expected at the time of the August Inflation Report," the minutes said. 

The minutes also reiterated its forward guidance that it will not automatically raise interest rates when the U.K. unemployment rate falls below 7%.

Investors were looking ahead to the outcome of the Fed’s two-day policy meeting, due to conclude later Wednesday, amid expectations that the bank would announce plans to start reducing its USD85 billion-a-month asset purchase program.

The dollar remained under pressure after a recent series of soft economic data, including the latest U.S. jobs report, saw investors reassess expectations over how much the Fed will cut its stimulus program.

Sterling was trading close to eight-month highs against the euro, withEUR/GBP down 0.43% to 0.8362.

The U.S. was to release data on building permits and housing starts later Wednesday, ahead of the Fed policy announcement.

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Silver futures trade at 5-week low amid Fed taper expectations

Silver futures fell to the lowest level in five-weeks on Wednesday, as investors looked ahead to the conclusion of the Federal Reserve’s policy meeting, with many traders expecting the central bank to start tapering the scale of its bond-buying program.

On the Comex division of the New York Mercantile Exchange, silver futures for December delivery traded at USD21.74 a troy ounce during European morning trade, down 0.2%. The December contract ended down 1% at USD21.78 a troy ounce on Tuesday.

Silver prices fell by as much as 1.9% earlier in the day to hit a session low of USD21.37 a troy ounce, the weakest level since August 14. 

Silver prices were likely to find support at USD21.26 a troy ounce, the low from August 14 and resistance at USD22.29, the high from September 16.

Market analysts expect the Fed will start cutting monthly bond purchases by USD10 billion to USD75 billion when it concludes its two-day policy meeting later on Wednesday.

Monthly purchases of Treasuries will be scaled back by USD10 billion to USD35 billion, while mortgage-bond buying will remain unchanged at USD40 billion.

Moves in the silver price this year have largely tracked shifting expectations as to whether the U.S. central bank would end its quantitative easing program sooner-than-expected.

The precious metal is on track to post a loss of nearly 29% on the year as traders bet an improving U.S. economy would lead the Fed to unwind its stimulus program by the year's end.

Elsewhere on the Comex, gold for December delivery shed 0.35% to trade at USD1,304.70 a troy ounce, while copper for December added 0.5% to trade at USD3.240 a pound. 

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European stocks steady in cautious trade ahead of Fed; Dax up 0.02%

European stocks were little changed on Wednesday, as investors eyed the Federal Reserve's highly anticipated monetary policy statement, expected later in the trading session. 

During European morning trade, the EURO STOXX 50 eased up 0.02%, France’s CAC 40 inched 0.05% lower, while Germany’s DAX 30 added 0.10%. 

Investors were awaiting the outcome of the Fed’s two-day policy meeting, due to conclude later Wednesday. The central bank was expected to announce plans to start tapering its USD85 billion-a-month asset purchase program.

A recent series of soft economic data raised doubts over how much the U.S. central bank will reduce its stimulus program, weighing on the dollar. 

Financial stocks were broadly lower, as French lenders BNP Paribas and Societe Generale were down 1.21% and 0.09%, while Germany's Deutsche Bank slipped 0.12%. 

However, among peripheral lenders, Spanish banks Banco Santander and BBVA gained 0.78% and 1.13% respectively, while Italy's Unicredit and Intesa Sanpaolo advanced 0.34% and 1.05%. 

Elsewhere, Siemens rallied 1.18% as it was preparing to appoint a new deputy chairman and finance chief at a supervisory board meeting on Wednesday, as the engineering company is trying to rebuild its ranks after months of upheaval. 

Among earnings, Spanish retailer Inditex reported an unexpected rise in first-half profit and said sales growth has accelerated since the end of July, sending the company's stock up 0.95%.

In London, FTSE 100 dipped 0.01%, led by sharp losses in Barclays' shares. 

The U.K. lender plummeted 6.18% following news it will have to refund at least 300,000 personal loan customers due to mistakes it made on their paperwork. 

Meanwhile, other U.K. banks were trending higher, as the Royal Bank of Scotland eased up 0.04% and Lloyds Banking climbed 0.52%, while HSBC Holdings gained 0.58%. 

Elsewhere, mining stocks were mixed. Shares in Glencore Xstrata and Rio Tinto lost 0.55% and 1.74% respectively, while Evraz and Polymetal advanced 0.80% and 1.04%. 

In the U.S., equity markets pointed to a steady to higher open. The Dow Jones Industrial Average futures pointed to a 0.05% gain, S&P 500 futures signaled a 0.04% rise, while the Nasdaq 100 futures indicated a 0.17% increase. 

Later in the day, the U.S. was to release data on building permits and housing starts.

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