FOREX: Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security

• Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security
• British Pound Tumbles on BoE Minutes Consideration of More Stimulus
• Euro and European Yields Quickly Lose Confidence after Greece Vote
• Canadian Dollar Wavers with Fed Festivities, BoC Warns of Rising Financial Risk
• Japanese Yen and Nikkei Futures Steady through 6.7 Earthquake
• Australian Dollar Finds More Guidance in Equities than Leading Index Release
• Gold Briefly Rallies to Six-Week High before Fed Saps Inflation, Stimulus Influence

Dollar Climbs, S&P 500 Stumbles after Fed Offers No QE3 Security

It was the dollar’s turn Wednesday to steal the fundamental headlines. However, after the disappointing reaction to the Greek confidence vote (a vote that kept the administration in place and thereby supports the bailout initiative and the euro); Forex traders were more reserved in their expectations to the FOMC rate decision. The gravity of the event however was not lost on the market; and traders showed their appreciation for its influence by holding steady on most fronts until the announcement and commentary was crossing the newswires. After the data was fully disseminated and speculators had accounted for the adjustments it made to the markets’ future; a measured decline in risk positioning and climb in the dollar began. Through the opening half of the Asian trading session, we find S&P 500 futures down 1.5 percent from the previous session’s highs while the Dow Jones FXCM Dollar Index has advanced as much as 0.9 percent to 9,661.

Looking at the progress from the markets after the Federal Reserve announced its policy decisions and projections; it is clear that there were no exceptional surprises. That said, there was enough there to alter the outlook for monetary policy expectations and risk trends. With EURUSD retreating back below 1.4300 and GBPUSD slipping below the floor of a five-month rising trend channel, this is not an idle correction. Evaluating the events of the active afternoon New York session, no one was caught off guard by the decision to maintain the benchmark lending rate unchanged at its range between zero and 0.25 percent. The statement was similarly lacking for notable changes beyond a mention of the economic impact Japan’s natural disaster back in March has had. Things get interesting though with the updated economic forecasts. Dampening any lingering hopes that a rate hike could still come before the year is out, the group lowered its growth forecasts through 2013 and softened its near-term inflation outlook. For 2011, the central bank predicts expansion of 2.7 to 2.9 percent (from April’s 3.1 to 3.3) while PCE inflation was set to a 2.3 to 2.5 percent range (from 2.1 to 2.8 percent previously).

Tempering already anemic rate expectations should actually deliver a slight boost to risk and hit to the greenback. Instead, we are responding to the far more contentious scenario for a withdrawal of the extraordinary stimulus that has been pumped in the system, lowered US rates to near-record low levels and subsequently leveled the dollar. In the press conference that followed the decision, Chairman Bernanke reiterated the $600 billion QE2 program would expire at the end of the month. And, while he left the door open for future accommodation “if warranted”, such flexibility to is to be expected. The level of stimulus now looks like it will be held steady for a number of months while the central bank assess, the financial and economic stability. When the market starts speculating on its unwinding, we’ll see risk fall while rates and the dollar surge.

Source: www.dailyfx.com