The Fed announcement did little to move currency markets during Asian trading but there was a negative tone to stocks and commodities. The Fed did not show any interest in a third round of QE when this ends in June, but will maintain its balance sheet at around $,2800 billion.

The major worry for markets remains the length and severity of the existing ‘soft patch’ in the economy. Bernanke believes it will be temporary but the fall in equity markets over recent weeks suggests that there has been a deviation between stock market expectations and reality. The Greenback may in fact be hitting a medium term bottom with the fact that the Fed is not considering additional QE.

The negative Fed stance combined with a vigilant reaction to the Greek government’s passing of a confidence motion suggests that markets will remain watchful over the near term. Without a doubt, comments by the Greek opposition that they will not support further austerity measures ruined any hopes of agreement and will add another obstacle towards an easing in Greek tensions.

The continued bickering between EU officials over private sector participation in any debt rollover in addition to uncertainty over how ratings agencies will respond, threatens to keep sentiment under pressure. The EUR has remained surprisingly resilient but its muted reaction to the passage of the confidence motion has given way to some weakness and the currency remains a sell on rallies.

Sterling suffered yesterday, weighed heavily by the relatively dovish Bank of England MPC minutes in which some members were even discussing further QE. The currency faces its toughest battle for months as it breaks through key psychological 1.60 level and currently stands 1.5987 and GBPEUR:1.1223.

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