Decision analysis: Fed reaffirms Commitment! Good news from Congress, too! Financial markets are on a roller coaster ride.

On Wednesday, the dollar fell choppingly against a basket of currencies, while spot gold rallied and the S&P 500 edged higher as the Federal Reserve reaffirmed its commitment to support the economy and U.S. fiscal stimulus talks made significant progress.

The Fed said it would buy at least $120bn of bonds a month “until substantial progress is made on the Committee’s maximum employment and price stability objectives”. The Fed declined to make any changes to the duration of its bond-buying program, but Chairman Colin Powell said the Central bank would increase its asset purchases if the economic recovery slowed.

Powell adds that he doesn’t think stock prices are necessarily high, given how low interest rates are.

U.S. congressional leaders are close to a deal on a $900 billion bailout package that would include a new round of direct payments to consumers. However, CNBC has confirmed that the plan does not include liability protection for corporate, state and local aid. Politico first reported the news.

The move follows a meeting on Tuesday between House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell, Senate Minority Leader Chuck Schumer and House Minority Leader McCarthy on the aid deal. Treasury Secretary Mnuchin attended the talks.

“I am optimistic that we will reach an understanding soon,” Mr McConnell said after the meeting on Tuesday night. Mr. Schumer said leaders are “making progress and hopefully we can reach an agreement soon.”

The deadline for the stimulus package approaches amid some of the darkest days of COVID-19. At least 212,000 COVID-19 cases and at least 2,400 virus-related deaths occur each day in the United States, according to a seven-day average calculated by CNBC based on data from Johns Hopkins University.

In late U.S. trading, the dollar index.DXY was down 0.27 percent at 90.23, down sharply from a high of 90.71 hit after the Fed’s decision and as low as 90.13.

Wells Fargo strategist Erik Nelson said the Fed did not extend the maturity of its bond purchases or adjust the pace of its purchases, as many expected, giving a boost to the weak dollar. Be bullish on the dollar in the short term, and expect some key dollar currency pairs, such as the euro against the dollar, to undergo modest reversals.

The S&P 500 rose 0.2 per cent to 3,701.17, just shy of its all-time closing high. The Nasdaq Composite index rose 0.5 per cent to 12,658.19, setting an all-time intraday high. The Dow fell 44.77 points, or 0.15%, to 30154.54.

Lindsey Bell, chief investment strategist at Ally Invest, told clients: “The stimulus package remains a key focus for the market because it is a necessary bridge to mass vaccination. Given expectations of a recent slowdown in economic data, market participants want a deal soon. If there is no agreement, the unrest could intensify.”

Spot gold fluctuated wildly, plunging and rising during the Fed’s rate decision and Powell’s press conference.

Spot gold closed at $1,864.65 an ounce, up $11.16, or 0.60 percent, after hitting an intraday high of $1,865.69 and a low of $1,844.69 an ounce.

Some analysts pointed out that although optimism around the US coronavirus stimulus plan and optimistic brexit news boosted risk sentiment, the US dollar turned from positive to negative after the Federal Reserve’s dovish outlook was released, while gold took a deep V reversal.

But gold traders remained cautious as Congress continued negotiations on a long-awaited economic stimulus package.

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