The US dollar tumbled to a fresh two-month low against a basket of currencies after the Federal Reserve surprised markets by expanding its asset purchasing program to longer-term government bonds.

Sterling

Sterling took full advantage of US dollar weakness. This overshadowed yet more bleak news from the UK economy as fresh data painted a picture of economic contraction and depressed demand for British goods. The UK Confederation of British Industry published its manufacturing order book balance, which came in at -58 in March; down from -56 in February. Separate data showed that Britain posted its biggest February budget deficit on record last month, taking the total for the fiscal year to date also to its highest level since 1993.

US Dollar

The greenback succumbed to heavy selling pressure, losing ground against all the other majors with the euro the primary beneficiary of the currency's weakness. The dollar's decline came in the wake of the Federal Reserve's announcement that it would initiate its first large scale purchase of government debt since the early 1960's. The Fed also stated that it would increase mortgage backed debt purchases as it continues in its bid to rescue the world's largest economy.

Euro

The euro surged to its highest level against the dollar in two months, enjoying its best single-day rally against its American counterpart since its inception in 1999. The euro was boosted by the broad-based dollar weakness and by the impressive revival of risk appetite.

Japanese Yen

The Japanese yen soared by over three per cent against the greenback in the aftermath of the Fed's announcement. The dollar's sell-off versus the yen appears to be somewhat of a knee-jerk reaction to the potential flood of greenbacks in the banking system.