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Fed Hold Rates at 0.25%, Announces $600 Billion in New Asset Purchases

By Michael Wright, Currency Analyst
03 November 2010 14:48 GMT

The highly anticipated FOMC rate decision failed to disappoint, but wasn’t necessarily what the market had anticipated. The Fed kept their key overnight lending rate unchanged at 0.25 percent, and went onto add that interest rates will remain “exceptionally low” for an “extended period.” The spotlight was placed on the quantitative easing measures and the Fed announced total asset purchases of $850 billion to $900 billion through June, and new asset purchases by $600 billion during the same period (which has slightly higher than many analysts anticipated), with about $75 billion per month. Subsequent to the report, currency markets were directionless as traders digested the report and its implications for the U.S economy going forward.

Today’s action wasn’t necessarily unexpected as the Federal Reserve looks to promote stable prices and employment. The federal funds rate is already close to zero, thus the next possible tool was further quantitative easing. Aside from comments noted early, the statement by the Fed said that the FOMC “will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.” With today’s decision finally passed us, Friday’s nonfarm payrolls will provide some color, and a worst than expected release will surely add additional weight onto the greenback.

Taking a look at the currency markets, the GBPUSD was directionless subsequent to the report, but this may bode well ahead of tomorrow’s Bank of England rate decision as the bullish trend remains intact. Indeed, some of the concerns that have rattled the U.S. economy are also of concern in the U.K.; however, inflation continues to remain at its elevated levels. Not to overlook, the government recently announced spending cuts of approximately 80 billion pounds in order to rein in on their high budget debt. Though these concerns are not in the spotlight as of yet, I do not expect the central bank to raise its asset purchases, which may in turn lead the GBPUSD to continue its northern journey.

GBPUSD Minute Chart

Fed_Holds_Rates_at_0.25_Percent_Announces_600_Billion_Dollars_in_New_Asset_Purchases_body_gbpusd.png, Fed Hold Rates at 0.25%, Announces $600 Billion in New Asset Purchases

Source: Intellicharts – Created by Michael Wright

GBPUSD Daily Chart

Fed_Holds_Rates_at_0.25_Percent_Announces_600_Billion_Dollars_in_New_Asset_Purchases_body_gbpusd1.png, Fed Hold Rates at 0.25%, Announces $600 Billion in New Asset Purchases

Source: Intellicharts – Created by Michael Wright

Written by Michael Wright, Currency Analyst

To Receive Future Articles by Email, please contact me at mwright@fxcm.com

Michael Wright is the author of FX Headlines, Fundamentals vs. Technical’s, Intraday Trading, Weekly Spotlight, and Forex Trading Weekly Forecast

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
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03 November 2010 14:48 GMT