Commodity futures brokers and traders anticipated Wednesday that U.S. Federal Reserve chairman Benjamin Bernanke would put pressure on the dollar and boost key commodities by buying hundreds of billions of dollars of bonds. Crude oil futures, which are highly responsive to movements in the greenback, rose sharply ahead of the expected announcement.
On the IntercontinentalExchange, West Texas Intermediate light, sweet crude oil futures for December delivery jumped briefly above $85 per barrel before retreating to trade at $84.29 per barrel, up 0.462 percent from yesterday's close.
"We’ve had an incredible rally already," Phil Flynn, vice president of research at PFGBest in Chicago, told Bloomberg News. "It will be interesting to see what happens after the Fed announcement because the stimulus has probably been priced in."
If the monetary stimulus comes up short – which might broadly be defined as any easing program under $500 billion – a negative market reaction seems likely, given how enthusiastically traders have been pricing in the potential impact of a QE program. If the Fed's announcement matches expectations, some analysts expect a mild sell-off; stimulus on a "shock-and-awe" level could light the fires for a significant rally in risk assets.
As always, however, market reactions are difficult to gauge ahead of time and easy to call in hindsight.
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