All the global markets had been anxiously awaiting the release of the crucial FOMC meeting minutes for this month. The markets were eagerly expecting the FOMC statement to answer the all important question of whether the Federal Reserve plans to taper the asset buyback program of its latest round of QE policy.

The FOMC statement said that there is no change in its policy as of know and it plans to continue its asset purchase of $85 billion in U.S. Treasury and mortgage-backed bonds each month. However, Federal Reserve Governor Ben Bernanke stated that if the U.S economic reports continue to improve the Fed may consider tapering its assets purchase program. But, he also said that the Fed is only slowing its pace of asset buyback and there is no change in the policy with no foreseeable change in the short-term interest rates.

However, the markets seemed to have interpreted the statement differently, considering the hints of tapering as an impending tightening of the Fed’s asset purchase policy.

Reacting to FOMC statement the greenback appreciated by 0.5 % against the Euro to reach $1.3225 per euro at 12:40 p.m. in New York, its biggest leap since the first week of May. With the USD rising by 1.6% against the Yen, all the currencies of other emerging economies took a bad hit from the appreciating US Dollar. Rupee for instance had the biggest fall of around 10% since May this year reaching a life time record low of 59.97 against the USD.

On the other hand, bullion took a big hit as it fell to a 2.5 year low of $1269.40 on Thursday, far below its April low of $1,323.00. Other precious metals like Silver also declined significantly by 0.82% due to the strong upswing in the greenback.  The Crude oil too declined considerably, feeling the heat of a strong USD. In NYMEX Crude’s July delivery fell by 29 cents to $94.84 a barrel by 0035 GMT, while the Brent crude fell by 10 cents to $102.5 a barrel. Other commodities too traded lower, with copper declining by 830 points to close at $305.80 cents on Wednesday.

The FOMC and Bernanke’s statement of possible QE tapering has sent cold jitters across the global markets. This had created a ripple effect on the stocks and currencies of many emerging economies. The possibility of a Fed Reserve’s QE wind-up translates to tightening of liquidity in the U.S economy, which had indirectly pumped huge funds into the global markets. Again the FIIs had largely pulled out of assets in emerging markets like India, as the rising U.S bond market and currency is now considered more attractive.

Analysts had predicted that the Federal Reserve’s QE policy exit would be painful for global markets. With the greenback expected to continue its strong bullish trend, the global markets for Gold, Crude and base metals might continue their bearish trend for now. A continued surge in USD is also bound to extend the downtrend for a while in the currencies of major emerging economies and consequently on their respective stock markets.

Note: This blog is just an expression of the author’s opinion and cannot be deemed responsible for any losses incurred.