Forex today: Fed proves to market it means business, regardless, dollar soars

Forex today was all about the FOMC and although the outcome was widely expected by market participants, there was a great deal of unwinding of the short dollar position in the market, sending the DXY 0.92% higher to 92.69 highs. 

The Fed announced its balance sheet reduction plan and the statement lead the market to believe that there will be three hikes in 2018 and at least one more hike in 2017, despite concerns about a weak H2 and inflation measures below the Fed's target. 

As a result, US 10yr yields rallied to a six-week higher between a rage of 2.22% to 2.29% while the Fed fund futures yields rose as well, pricing the chance of a December rate hike at 66% from 56%. GBP was bid initially on a positive retail sales report for August, but succumbed to the frenzy for the greenback and dropped 150 pips from the 1.36 handle to make a fresh low at 1.3452 since last Friday's close. The euro was down -0.82%, losing its fragile grip on the 1.20 handle and made a fresh low of 1.1862, trading its lowest levels since the 14th September. The yen closed -0.50% lower on the move in the greenback to 112.53. 

The Aussie finished the day up +0.22% at 0.8028 having rallied from the 0.80 handle yesterday and making fresh highs pre FOMC announcements at 0.8087. Kiwi was 0.55% higher, trading on the coattails of the Aussie overnight, closing at 0.7357 between a high of 1.7436 and low 0.7303. USD/CAD ended +0.22% at 1.2320, above a low of 1.2195 and below the high of 1.2391. WTI was trading in a $1.00 range again and closed at $50.73 while Gold plummeted to the lowest level in three weeks at $1,296.05 the low, closing $1,299. 

Key events in Asia

Analysts at Westpac highlighted the key events in Asia as follows:

"NZ: Q2 GDP is expected to rise 0.8%, taking the yoy pace to 2.5% (which is what it was in Q1). NZ markets will also be watching an election poll tonight.

Australia: RBA Governor Lowe gives a speech titled “The Next Chapter” in Perth, 1:10 pm Sydney time.

Japan: The BoJ policy decision is expected to be on hold. While growth has picked up recently and the jobless rate is low, inflation is still well below target and we are yet to see a rise in full-time wages.

Key notes from US session 

• Plotting the dots: Fed generally more upbeat - ANZ
• DXY +92%: shorts repositioning in a major way on bullish Yellen / hawkish FOMC
• FOMC is still aiming for a third hike before the end of the year - Rabobank
• FOMC's decisions regarding monetary policy implementation - Sep 20, 2017
• FOMC statements: Comparison between July and September