eToro News
Friday, February 19, 2010
The Federal reserve surprised the market by raising its discount lending rate to banks from 0.5% to 0.75% thus effectively raising the spread on Fed funding to 0.5%(Discount rate less Benchmark rate).The Fed chairman already announced in his statement earlier this week that the Fed will move very soon to tighten the discount rate as part of a grander scheme to move out of emergency measures and in to normalization. However markets have not been expecting the move to be so quick and were caught by surprise. Although the Fed in its decision went out of its way to outline this is only a move towards normalization rather than a tightening move investors thought differently. The fact that the fed has raised its discount rate for the first time in 3 years was preserved by the Foreign exchange players as a preliminary step towards an eventual tightening by the Fed. The reaction in the Forex arena was rather strong with the Dollar pushed to its highest point in more than 3 quarters against the Euro trading under the 1.35 mark just 20 pips shy of the 1.34 mark. The Dollar appreciated against other currencies as well trading above 1.08 against the Swiss Franc and teasing the 92 level against the Yen in what that could be best described as a broad Dollar rally.
Euro Dollar after the Fed statement
EUR/USD fell close to 200 pips in 3 hours
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