Wednesday, 3 Nov 2010

Fed Announces an Extra Purchase of $600 Billion of Treasuries Causing Market Turmoil

A week of expectations has reached its end as the Federal Reserve announced its stimulus decision today at 18:15 GMT. The Fed will buy an additional $600 billion of treasuries through June. This will expand the record stimulus, all in the effort to reduce unemployment and avert deflation.

Extremely volatile trading took place once the decision was declared. The EUR/USD jumped 180 pips within less than a minute. The GBP/USD moved 100 pips while the USD/JPY saw a 60 pip jump. Commodities saw unusual trading as well, especially gold, which fell from $1,350 an ounce to $1,325 an ounce within 20 minutes.

For the moment, the market appears to have calmed down, and most currencies will remain at their current levels. The dollar has weakened further due to the stimulus decision, and the EUR/USD is currently trading above the 1.4100 level.

Looking ahead to tomorrow, another volatile session is expected as a batch of data is scheduled from the leading economies. Special attention should be given to the European and British interest rates announcements as heavy volatility might be seen as a result.