Now that the dust has settled and the volatility has been hopefully expunged from FX markets, it’s time to take stock of the Fed after Chairman Ben Bernanke’s comments on Wednesday and the release of the minutes from the June meeting the same day. Bernanke was notably more dovish with low inflation and employment allowing for loose policy. The tapering or slowing of QE, the Fed’s bond buying program to keep rates low, has not been taken off the table. That compares with the situation in the euro zone and Japan so the dollar is fundamentally supported. Tapering does not imply a rate hike but it never did. Investors were anticipating an end to easy money which is what tapering will represent but the Fed’s policy is still accommodative. Even if they slow asset purchases in September, still likely, they are not going to end them until sometime in 2014 if all things are favorable and that would put a rate hike out to 2015, and that assumes that the economy is chugging along much better than it is now with solid gains in employment and higher prices. So what has happened? The market just realized it got ahead of itself. After this volatility expect the dollar rally to resume. It is a long term trend. And remember that Bernanke’s comments came at the end of the New York session and Asia was only just beginning to stir in New Zealand and Sydney. Very thin trading volume exacerbated the moves.