The dollar fell against the euro after the Federal Reserve added to its monetary-stimulus program by announcing plans to buys more Treasuries, renewing concern the measures will debase the U.S. currency.
The U.S. currency weakened after the central bank tied its policies to economic benchmarks and said it will buy an additional $45 billion of Treasuries a month, adding to its third round of quantitative easing, and matching economists’ forecasts. The yen fell to the weakest in eight months versus the dollar as Japan’s Liberal Democratic Party, which has pledged fiscal stimulus to stoke economic growth, leads in polls before Dec. 16 elections.
“The market tends to have that kind of reaction when an action is perceived as more quantitative easing,” Sireen Harajli, a foreign-exchange strategist in New York at Credit Agricole SA, said in a telephone interview. “Even though we saw the dollar fall, any weakness in the dollar will generally be capped by safe-haven flows.”
The dollar declined 0.6 percent to $1.3076 per euro at 3:04 p.m. in New York, reaching the lowest since Dec. 5. The euro gained 1.3 percent to 108.72 yen. The Japanese currency lost 0.8 percent to 83.15 per dollar, reaching the lowest level since April 2.
“Dollar-yen is holding above 83, which is quite remarkable given that the Fed just eased policy,” Marc Chandler, New York- based global head of currency strategy at Brown Brothers Harriman & Co., said in a telephone interview. “If you would’ve told most people the Fed would announce aggressive QE, they would’ve expected the dollar to get sold off across the board.”
The central bank linked the outlook for its main interest rate to unemployment and inflation.
“The conditions now prevailing in the job market represent an enormous waste of human and economic potential,” Fed Chairman Ben S. Bernanke said in a press conference in Washington today after a meeting of the Federal Open Market Committee. The Fed plans to “maintain accommodation as long as needed to promote a stronger economic recovery in the context of price stability,” he said.
The Fed said interest rates will stay low “at least as long” as the unemployment rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent. The committee “views these thresholds as consistent with its earlier date-based guidance.”