- FOMC unveils $400B Operation Twist
- Fed will sell maturities to 3yrs and buy 6-30yrs
- Fed sees “significant downside risks to the economic outlook”
- Greece announces fresh austerity measures
- Moody’s downgrades Bank of America, Wells Fargo
- Obama calls for “urgent and coordinated action” at UN
- ECB alters collateral rules
- Seven Italian banks downgraded
- US existing home sales +7.7% vs. +1.4% exp.
- RBNZ’s Bollard says rates still need to rise; NZD overvalued
- IMF says public funds may be needed for European banks
- Austria beats back downgrade rumors
- Norges Bank holds rates at 2.25%
- USD top performer, followed by JPY; AUD and NZD the laggards
- S&P500 falls 3% to 1166
- Gold down $21 to $1785, Oil down $1.73 to $85.19
The Fed introduced Operation Twist but the lack of other action (or hints at action) combined with a downgrade to the outlook sent the US dollar flying higher. A 100-pip short squeeze in EUR/USD pre-FOMC was wiped out and more as the pair fell from nearly 1.38 to nearly 1.36.
The Fed retained the comment that “Longer-term inflation expectations have remained stable,” a sign that QE3 is not yet on the table. This and the absence of cut in IOER boosted USD/JPY to 76.65 from 76.30 in spite of the fall in stock markets.
Commodity currencies were the big losers on the downgrade to the outlook. AUD and NZD fell around 200 pips on the day (all of it after the FOMC) and USD/CAD traded at the highest since December.
