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US dollar strengthens post-FOMC

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US dollar strengthens post-FOMC

The US dollar rallied to a two-week high as market participants continued to digest the Federal Open Market Committee’s latest decision not to taper asset purchases. The dollar was severely weakened after the 16-day government shutdown shed some-$24 billion from the US economy, which prompted investors to place negative bets against the greenback.

Although economists expect the Federal Reserve to maintain the $85 billion pace of monthly asset purchases until March 2014, currency traders improved their outlook on the greenback after the Federal Reserve made no direct reference to the government shutdown in its official statement. In fact, the Fed previously remarked economic growth was “modest to moderate” during the furlough. For some traders, this means the Fed will keep its options open on tapering. For others, however, post-FOMC was a perfect time to cut bearish bets on the dollar and turn a profit.

The US dollar jumped more than half a percent to 80.24 against a basket of its major competitors. The greenback reacted positively after jobless claims fell by 10K, as California cleared its backlog.

In Europe, the dollar fell 15 pips against the British pound after UK housing prices soared 5.8 percent from a year ago. Most of the profit taking occurred against the common currency, which lost 130 pips to fall below 1.36 US dollars.

The US dollar approached an October high against the Japanese yen in the early Asian session before falling a quarter percent to 98.30. The yen weakened after the Bank of Japan announced no changes to its stimulus program.

North of the border, the Canadian dollar advanced 40 pips against its American counterpart after the Canadian economy accelerated at a faster rate than expected in August. Real GDP rose 0.3 percent in August, led by the energy sector.

Although the Fed’s recent decision surprised no-one, the central bank took a less pessimistic tone in assessing the US economy. This could give the greenback a silver lining if market participants feel a bond taper will occur before March of next year.

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