Currency markets went on a roller coaster ride today in NY, with the many ups and downs flowing from expectations ahead of the FOMC policy statement and then from the reaction to the Fed's announcement. First off, what did the Fed signal? Steady rates at 0.00-0.25% for an extended period (same language as recent statements), a slightly more upbeat view on the economy (''economic activity is leveling out''), and a step back from quantitative easing (Treasury and mortgage security purchases) by not expanding previously announced asset purchases. The Fed statement was broadly in line with market expectations, but the shift in quantitative easing was somewhat unexpected and represents the first signal that unconventional easing is unlikely to be expanded as the economy stabilizes.

The FX moves essentially continued to revolve around risky asset markets, as the JPY-crosses rebounded from overnight declines as US stock markets posted early gains on expectations the Fed would acknowledge economic stabilization but keep rates on hold. EUR/JPY rallied from around 135.00 to just over 137.00 as stock markets posted early gains of about 1.25%. The USD weakened in tandem with rising stock markets, as so-called 'riskier' currencies were bought. After the Fed announcement, the USD bounced back and JPY-crosses slid lower, while stocks faltered momentarily on the potential reduction in unconventional easing. But stocks quickly stabilized and surged to new highs, causing yet another intra-day rebound in JPY-crosses. Heading into the close, however, stocks surrendered some of their gains to close slightly below levels prevailing before the Fed's announcement. EUR/JPY slipped lower in unison, finishing out around 136.30, mid-way between its post-FOMC high of about 137.25 and its post-FOMC low of around 135.50.

FX correlations to risk assets looks set to continue in the sessions ahead and the key will be whether Asian and European investors embrace the same cautiously optimistic outlook displayed in NY today.