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Forex pairs in this Article » EUR/USD, USD/JPY (London) - Yesterday, Fed chairman Ben Bernanke shocked markets by announcing that there would be no tapering of the central bank’s open-ended quantitative easing programme. The announcement sent Fed liquidity dependent markets surging.

Citing rising mortgages and tighter monetary conditions, Bernanke stated that the Fed would keep injecting USD85bn into the markets: “The Committee sees the downside risks to the outlook for the economy and the labor market as having diminished, on net, since last fall, but the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market.”

US equity markets surged, with the S&P smashing through to new highs at 1,729.44 in a fit of exuberance.

Through the overnight Asian session, Bernanke did no favours for Japanese Prime Minister Shinzo Abe, strengthening Yen and undoing any efforts by Abe to push Japan’s currency downwards. USDJPY hit JPY98.4800 with that bullish trend still in place despite retracing to twice meet support at JPY98.225.

SE Asian liquidity fears abate

Across the South East Asia FX markets there were surges, before the usual break down in liquidity conditions. Many of these currencies (INR, IDR (NDF), MYR) had been particularly exposed to any drops in Fed liquidity on BoP imbalances. INR non-deliverable forwards (NDF) made several attempts to break the INR61.500 level, while MYR gained almost 2.5 percent on the dollar. One month USD/KRW NDFs shed 0.9 percent to around KRW1,074.

NZD/USD shot from USD0.8240 to USD0.8383 on the Fed announcement. It shed some gains down to USD0.8330 before regaining ground USD0.8375 on stronger than expected second quarter GDP figures.

Gold rallied sharply on the news that the Fed would continue its policy of monetary expansion at its current rate, giving the yellow metal a much-needed boost to USD1,368.10/oz. Any further gains were checked, with gold remaining within the USD1,358-USD1,368 channel.
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