Following weeks of speculation, the US Federal Open Market Committee finally delivered what markets had expected, which was a significant increase in quantitative easing measures designed to stoke a flagging US economy. The FOMC pledged to keep interest rates at near zero for an “extended period” and also embark on another $600b of treasury purchases over a period of eight months. The move was more or less in line with expectations but failed to stop the US dollar tumbling to new record lows against several rivals including the euro and sterling. The pound’s move higher actually came prior to the Fed’s announcement after more encouraging UK data helped ease fears that UK monetary policy may head in a similar direction to the US. The Bank of Japan, could now take emergency action to stem the yen’s unwelcome rise against the US dollar.
Sterling
Cable shot to nine-month highs even before the US FOMC delivered their dollar negative extension of quantitative easing measures. The earlier move came following news that UK service sector activity expanded in October.
US Ddollar
Although losses eased, the US dollar tumbled to new record lows following the FOMC’s decision to extend treasury purchases. The news was more or less in line with expectations, however, with US interest rates expected to remain near zero for some time the US dollar could continue to suffer.
Euro
Now that the US FOMC have delivered what markets were so desperately anticipating, investors can again focus more on economic fundamentals. This is one factor which helped the euro push three-week highs against the Japanese yen and 9-month highs against the US dollar.
Japanese yen
The yen firmed against the US dollar after the US FOMC pledged to add further stimulus to its economy. All eyes will now turn to the Bank of Japan who will conclude their monetary policy meeting in the early hours of Friday. South Korea was already seen intervening in currency markets and the BoJ may take similar action.
Commercial Foreign Exchange Travelex Malta, freephone: 800 733 22, www.travelex.com/mt/