Announcements by the FOMC that it would implement “operation twist” prompted the U.S. Dollar to gain against all of its trading peers. The Federal Reserve said it would buy $400 billion worth of long-term bonds with maturities between 6 and 30 years and would sell an equal amount of short-term bonds to prevent the nation from falling back into a recession. This increased the greenback’s safe haven appeal, thereby causing it to strengthen across the board. The currency rallied as the FOMC announced that it would re-invest in mortgage securities in order to fuel economic growth, lower borrowing costs and create more jobs. Analysts believe this is a positive move and that the plan differs from the former bout of quantitative easing in that it won’t boost inflation and will protect the value of the greenback. On the economic front, metrics showed that Home Sales rose to 5.03 m instead of the anticipated 4.75 m. This means that Home Sales increased 7.7 percent MoM in August. Meanwhile, Canada’s Dollar fell to its lowest price so far this year against the U.S. currency following the Federal Reserve’s announcement. The currency dipped as stocks and crude oil prices slumped on the Fed’s statement.
And while there were no economic reports affecting the Euro’s value, the shared currency responded to the FOMC decision by trading lower versus the U.S. Dollar. The Euro recouped some of those losses on reports that participants at the G20 meeting will address the introduction of Euro bonds. The Pound Sterling slipped to an eight-month low versus the U.S. monetary unit after Bank of England officials indicated they would need to engage in further stimulus in order to place a cap on borrowing costs should the economy continues to worsen. The British Pound was also weighed down by less than stellar data showing a hike in Public Sector Borrowing.
Japan’s currency slumped against the U.S. Dollar but rallied versus the British Pound as metrics revealed a lower than anticipated rise in the country’s exports, as well as the FOMC announcement on the introduction of “operation twist.”
Lastly, The Australian and New Zealand Dollars slipped to the lowest prices in over a month against the U.S. currency as stocks and commodities dipped following the Federal Reserve’s statement indicating there were “significant downside risks” to the economy. The Kiwi weakened early in the day as figures showed that the Current Account Deficit widened more than expected.
EUR/USD- G20 Meeting To Begin This Week
The Euro weakened against the U.S. Dollar following the FOMC announcement that it would implement a plan aimed at preventing the country from falling back into another recession. The shared currency dipped in the early part of the day as the president of the E.U. Commission, Manuel Barroso, changed his opinion on introducing Euro bonds. The Euro erased some of its losses on reports indicating the bonds will be the focus of discussion at the G20 meeting, which is scheduled to begin at the end of this week.
GBP/USD- Minutes Weigh On Pound
Investors sold off the British Pound after the Bank of England’s policy minutes from September revealed a shift in stance regarding a need for further stimulus. Some bank officials indicated that the current situation is reason enough to increase the asset purchases. On the economic front, metrics showed that Public Sector Borrowing rose 13.2 bn when only 11.4 bn were expected. Public Finances revealed figures of 11.8 bn, a factor that will affect perceptions of the U.K. These metrics proved that despite the stringent austerity measures in place, the reality is different.
USD/JPY- Exports Affected By High Value Yen
The Yen weakened against the U.S. Dollar and the Euro; however, it advanced versus the Pound Sterling. Japan’s Yen dropped as the FOMC announced a new type of stimulus comprising the replacement of short-term bonds with longer-term treasuries to help boost growth. Data showed that exports rose 2.8 percent in August as opposed to the expected 8.0 percent. Other print indicated that the Trade Deficit expanded to its largest level. The nation’s growth was mostly seen in the auto industry wherein exports jumped by 5.3 percent.
USD/CAD- Dollar Trades At 2011 Low
The Canadian Dollar traded at the lowest price in 2011 versus the greenback, as the Federal Reserve Chairman, Ben Bernanke, stated the new stimulus plan poses “significant downside risks” for the U.S. economy. The Loonie, as many refer to Canada’s monetary unit, slipped further as stock and crude oil prices slumped. Economic data indicated that Consumer Prices rose 3.1 percent in August.
Today’s economic calendar shows that the E.U. will report on Manufacturing PMI and Industrial New Orders. The U.K. will release CBI Industrial Trends Orders while Canada issues Retail Sales and Core Retail Sales. The U.S. will announce Initial and Continuing Jobless Claims.