Dollar Jumps as Fed Expands Bond Purchases

The US dollar jumped after the Federal Reserve announced it’s going to increase purchases of longer-term securities. The resulting surge of demand for safer currencies was beneficial for the dollar.
The Federal Open Market Committee left the federal funds rate at 0 to 0.25 percent range. The FOMC wrote in its statement:

The Committee intends to purchase, by the end of June 2012, $400 billion of Treasury securities with remaining maturities of 6 years to 30 years and to sell an equal amount of Treasury securities with remaining maturities of 3 years or less. This program should put downward pressure on longer-term interest rates and help make broader financial conditions more accommodative.

The expansion of the long-term securities buying program and the prospect for the low interest rates over prolonged time suggests that the Fed has a very negative outlook for the US economy. The dollar, being a “refuge” currency profited from the risk aversion that followed the FOMC statement. The Dollar Index gained 1 percent to 77.803 as of 17:00 in New York.
EUR/USD fell from 1.3571 to 1.3552 as of 4:31 GMT today. GBP/USD dropped from 1.5498 to 1.5460, while USD/JPY rose from 76.44 to 76.75.

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