The dollar recovered overnight while stocks pared recent gains as the FOMC statement released overnight was seen as less dovish than expected by some economists. Fed let's rate unchanged at near zero level and maintained the $85b monthly pace of asset purchase as widely expected. The central bank acknowledged that "fiscal policy is restraining economic growth". But it also noted that "taking into account the extent of federal fiscal retrenchment over the past year, the committee sees the improvement in economic activity and labor market conditions since it began its asset purchase program as consistent with growing underlying strength in the broader economy." And, it reiterated that it will "await more evidence that progress will be sustained before adjusting the pace of its purchases." And, Fed also repeated that it will hold rates near zero "at least as long as" unemployment staying above 6.5% or inflation kept below no higher than 2.5%.
Overall, the statement gave no additional languages on the dovish side which some market participants are looking for. March is still the generally expected time for Fed to taper the stimulus. However, there are some speculations after the statement that Fed would cut back the asset purchase as soon as in January. According to Citigroup, the chance of January tapering rose to 45%, up from 25% before yesterday's statement. But again, it should noted that Yellen would likely take over Bernanke's job as Fed chairman in January. And, seen as more dovish than Bernanke, it's more likely for Yellen to keep stimulus longer than currently expected, than pushing the tapering schedule ahead.
S&P 500 close mildly down by -8.64 pts after hitting a new record intraday high at 1775.22. DOW also closed down -61.59 pts after hitting a new record intraday high at 15721.00. Treasury yield gained with 10 year yield closing mildly higher at 2.527%. Dollar index jumped to as high as 79.90 be failed to take out 80 level and is back at 79.70 at the time of writing. Dollar extended recovery against other major currencies. But the more notable development was seen in USD/JPY, which took out 94.48 minor resistance and is likely heading back to 99 level.
New Zealand dollar has been soft after RBNZ left the OCR unchanged at 2.50% as widely expected. An important point to note is that, in the statement, governor Wheeler noted that "sustained strength in the exchange rate that leads to lower inflationary pressure would provide the bank with greater flexibility as to the timing and magnitude of future increases in the OCR." Nonetheless, Wheeler also mentioned that the exchange rate "remains high and is a headwind to the traded goods sector." And, he also reiterated that increase in rate "will likely be required next year".
On the data front, Australian dollar was supported by strong housing data which saw 14.4% mom jump in building approvals in September. Import price index rose 6.1% qoq in Q3. New Zealand building permits rose 1.4% mom in September while NBNZ business confidence dropped to 53.2 in October. Japan PMI manufacturing improved to 54.2 in October. UK Gfk consumer sentiment dropped to -11 in October. German retail sales, Italian unemployment, Eurozone unemployment CPI, Canada GDP, US jobless claims and Chicago PMI will be leased later today.