Week of Tapering Was Not as Good for Dollar as One Might Expect

The major event on the Forex market this week was undoubtedly quantitative easing tapering by the Federal Reserve. The dollar rallied after the Fed announcement, but quite a few major currencies were surprisingly strong against the greenback even after the tapering.

The US central bank decided to trim its monthly asset purchase by $10 billion. The decision was not completely unexpected, but traders were not unsure of timing and there were strong arguments against tapering in December. Yet outgoing Chairman Ben Bernanke did not hesitate even as he prepares to transfer his post to Janet Yellen.

As one might expect, the dollar surged after the stimulus reduction, but many currencies showed unexpected resilience despite the news. The rally of pound, of course, could be explained by strong macroeconomic data and Friday’s poor reports did not make the sterling erase its gains completely. The euro and the Canadian dollar were holding ground too, ending the week with losses, but reducing them significantly. The Japanese yen was a clear loser, falling for the eighth week in a row.

EUR/USD dropped from 1.3727 to 1.3680. GBP/USD rallied from 1.6288 to 1.6483 during the week and closed at 1.6340. USD/CAD closed at 1.0646, trimming the advance from 1.0589 to 1.0736. USD/JPY rose from 103.26 to 104.05.

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