In the currency market, the dollar notched big gains against the euro. Late Tuesday, the euro was trading at $1.4162 vs. $1.4305 on Monday. The buck was already upward bound before the results of yesterday’s FOMC meeting.

The Fed, apparently trying to project an appearance of calm and stability as financial markets are ripped apart, left its benchmark fed funds rate unchanged at 2.0%.

“At the end of the day the Fed has refused to bow to pressure to save the system above and beyond what it’s already done,” said Andrew Wilkinson, of Interactive Brokers.

“The winner today may well be the greenback whose multi-year downtrend appears to have run its course. The fact that the currency went into the meeting rallying hard against all units except the yen points to the fact that investors have invested in the policies at both the US treasury as well as at the Fed,” Wilkinson added.

The dollar received its initial boost from a Labor Department report showing that consumer prices dipped 0.1% in August, the first decline in nearly two years. Core CPI, excluding food and energy, rose 0.2%, however. Both numbers were right in line with economists’ expectations.

Many market watchers were expecting a quarter-point rate cut yesterday and, not getting it, still feel it may be in the cards next time. But there is apparently a significant difference of opinion in the FOMC, with a vocal minority warning that inflation remains the most serious threat to the economy, while the others say the focus should remain on the weak economy.

But, “Growing economic slack and sagging commodity prices suggest inflation will drop quickly in the months ahead,” said Sal Guatieri, an economist for BMO Capital.

Source:  Dollar shoots higher -  Fed leaves interest rates alone.