The U.S. Dollar plunged against its peers after the Federal Reserve’s Chairman, Ben Bernanke, announced that the central bank would begin a third round of asset purchasing in an effort to fuel economic growth. This raised concerns that such measures will continue to debase the U.S. currency. The greenback remained weak as Mr. Bernanke explained that the Fed will increase its holdings of long-term assets by buying $40 billion in mortgages every month so as to improve the real estate market. He also suggested that the FOMC will keep the Federal Funds rate at close to zero until the middle of 2015. On the data front, early releases showed that the number of people applying for unemployment benefits rose by 15,000 to a seasonally adjusted 382,000 in the week that ended on September 8th. Other reports revealed that Producer Prices climbed by a seasonally adjusted 1.7 percent in August, while investors predicted a 1.1 percent hike. The U.S. Dollar traded at a 13-month low versus its Canadian counterpart as investors awaited announcements by the Federal Reserve. The Loonie advanced subsequent to an increase in commodity prices, which took place as the Federal Reserve upgraded the forecast for Gross Domestic Product. The prediction is that the economy will grow by 3.0 rather by 2.5 percent in 2013.
The Euro gained against the U.S. Dollar after the Federal Reserve announced it will implement another round of quantitative easing to bolster the U.S. economy. And after erasing some of its previous gains, the shared currency regained its footing as Italy saw borrowing costs decline at a government debt auction. The British Pound was almost unchanged, but gained against the U.S. currency following statements by the Fed Chairman Bernanke regarding the bank’s plans for further easing.
The Yen traded at a seven-month high against the U.S. Dollar, raising speculation that Japan’s policy makers will consider another intervention in order to lower the Yen’s value. The country’s Vice Finance Minister, Takehiko Nakao, commented that the latest surge in the Yen versus the greenback has been of a speculative nature and that Japan can’t disregard such moves.
The Australian Dollar dipped against the greenback as investors were nervous ahead of the Federal Reserve’s decision. The Aussie’s decline was limited as markets are still clamoring over the positive news out of the Euro-zone when Germany’s Constitutional Court approved the nation’s participation in the bailout fund. The Court also cleared the path for the German President to ratify the European Stability Mechanism under a number of conditions that will allow for the European Central Bank to proceed with the purchase of government bonds.
EUR/USD- Euro Higher On FOMC
The 17-nation currency traded mixed, although it advanced against the U.S. Dollar after Fed Chairman Bernanke announced a third round of quantitative easing. The Euro remained strong as election results in Holland showed that the moderate centrist party turned out victorious; this is the party that supports the E.U. On the data front, Italian CPI fell slightly on an annualized basis, and Italy’s government debt contracted from 1972.9 bn to 1967.5 bn Euros. The European Central Bank revised the growth forecasts reducing them to -0.6 percent for 2012 and to 1.5 percent in 2013. It raised the inflation forecasts to between 2.4 and 2.6 percent for 2012 due to hikes in commodity prices.
GBP/USD- Sterling Gains On Risk Appetite
The British Pound has advanced as a result of risk appetite brought on by optimism over the situation in the Euro region. But it continued to rally against the U.S. Dollar after the FOMC announced it will implement further monetary easing. Recent releases indicating a strong increase in Employment and a contraction of the Trade Deficit has improved the outlook for the British economy and its currency. However, according to analysts, most of the Sterling’s strength has derived from the weakening of the greenback.
USD/JPY- Yen Trades At Seven-Month High
The Yen extended gains against the U.S. Dollar and advanced against the British Pound. It traded at a seven-month high versus the greenback after the Federal Reserve made an announcement indicating it will engage in another round of quantitative easing to improve the nation’s economy. Japan’s currency has now reached the level which concerns policy makers and increases the possibility for intervention. Analysts believe that investors will now shift their focus to the Yen and will pay close attention to any comments by the Bank of Japan to obtain clues on how officials will act and how they’ll intervene if they do at all.
USD/CHF- SNB Leaves Rate Unchanged
The U.S. Dollar rallied against the Swiss Franc after the country’s central bank announced it will leave the benchmark interest rate at zero percent. The Swiss National Bank also revised down its predictions on inflation for this year to 0.6 percent from a previous estimate for a 0.5 percent decline. The Bank’s Chairman, Thomas Jordan, pledged to maintain a ceiling on the exchange rate at 1.20 CHF per Euro. The Franc dipped later in the day after the Federal Reserve issued its decision to implement further quantitative easing.
Today’s economic calendar shows that Japan will report on Industrial Production. The E.U. will issue data on CPI, and Core CPI as well as on Employment Changes. The U.S. will release CPI, Core CPI, Retail Sales, Industrial Production, and the Michigan Consumer Sentiment.