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FOREX-Dollar slides broadly as Fed unleashes new stimulus
September 13, 2012 / 5:46 PM / 5 years ago

FOREX-Dollar slides broadly as Fed unleashes new stimulus

* Fed announces new stimulus program
    * Dollar falls to 7-month low versus yen
    * Euro hits 4-month high against dollar

    By Julie Haviv
    NEW YORK, Sept 13 (Reuters) - The dollar slumped broadly on
Thursday, hitting a seven-month low against the yen and a
four-month trough versus the euro as the Federal Reserve
announced another aggressive stimulus program to bolter the U.S.
economy.
    In a significant shift in monetary policy, the Fed said it
would buy $40 billion of mortgage debt per month and will
continue to purchase those and other assets until the weak
employment picture shows marked improvement. 
    Many market participants expected the Fed to launch a third
asset purchase program after the close of a two-day meeting. A
new round of bond purchases, known as quantitative easing, or
QE, is viewed as negative for the dollar because it is
tantamount to printing money and dilutes its value.
    "I was expecting them to keep it more open-ended, but
overall, we're getting QE3," said Omer Esiner, chief market
analyst at Commonwealth Foreign Exchange in Washington, D.C.
    "The knee-jerk reaction to sell the dollar is the correct
one," he said. "I do wonder how much lower the dollar can go,
though, given that much of this was priced in." 
    Against the yen, the dollar last traded at 77.42 yen,
down 0.5 percent on the day, after hitting a low of 77.11, its
lowest since Feb. 9. Further falls would put markets on alert
for possible intervention by Japanese monetary authorities to
stem the rise in the yen, traders said.
    The euro was last at $1.2954, up 0.4 percent on the day
after hitting a peak of $1.2961, its highest since May 10. 
    In its prior two rounds of QE, the Fed bought about $2.3
trillion in bonds to lower long-term interest rates. While lower
rates may prod more U.S. business and residential investment, it
is seen as dollar-bearish since there is less incentive for
foreigners to buy what could be lower-yielding U.S. debt.
    Fed Chairman Ben Bernanke, at the Fed's annual conference in
Jackson Hole, Wyoming, late last month, had stressed the need to
bring down the country's stubbornly high jobless rate and said
the U.S. central bank would act as needed to spur the recovery.
    The euro remained firm after Germany's Constitutional Court
on Wednesday cleared ratification of the euro zone's permanent
rescue fund, paving the way for the European Central Bank to buy
bonds of struggling countries in the region. 
    Also helping the euro was the result of elections in the
Netherlands, where pro-European parties crushed radical fringe
groupings, dispelling concerns that euro-skeptics could gain a
power base in one of the euro zone's core states.

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