The Fed Disappoints Wall Street, the Dollar Didn’t Show Relative Strength

It was an interest rate decision day yesterday, as the Fed released its statement mentioning that even though the economy is recuperating, there are still concerns regarding consumer consumption, which derives from the employment situation. The Fed left it rates at a range of 0-0.25%, stressing that it will leave its rates at their current low level for an extended period.

The markets took the news more than lightly, erasing their intraday gains, after bouncing higher at the start of the session. Even though additional fundamental data helped to spark buying throughout the session, including a better ADP result, of -203.00k, the market lost its steam during the session. One must note that the ADP result was better that last month’s result, but came out lower than expected.

After presenting some volatility the major indices began to decline, led lower by the financial sector. The fed also mentioned that while the overall market has improved the battered financial market didn’t show signs of improvement during October. The major indices closed mixed with the S&P500 holding on to positive territory. The Nasdaq closed the session lower, down by 0.09%.

From a technical point of view, the S&P500 is still holding above it prior low, but is yet to complete its current turnaround and form a higher low.

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The Fed left rates unchanged as promised, helping fuel the flow into riskier investments. On the day, the ICE futures, which measures the Dollar against a basket of 6 major currencies was down to 75, down from the month high of 76.8172.

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The US Dollar continued its rebound started Monday on the heels of Federal Reserve Chairman Ben Bernanke’s comments. The Dollar also was helped by a profit taking selloff in stocks, oil and gold – all which have been steaming forward as of late. Coupled with all of the above, the European Central Bank President, Jean Claude Trichet commented that the Euro is not a substitute for the Dollar as a reserve currency and that the Dollar’s function as the primary reserve is essential. This gave investors and additional sense of calm amidst the Dollar’s recent weakness and worries about the prospect of it losing steam as the major reserve currency for the world’s major countries.