Dollar Drops on Fed Grim Speculations

After having a significant rally in the end of the last week versus the euro and several high-yielding currencies, the dollar fell today considerably, as the Federal Reserve is likely to maintain its interest rates at a record low for an undefined amount of time.

The Federal Reserve Bank of St. Louis President James Bullard once again moved currencies markets supporting stimulus measures that involve mortgage-backed securities purchases, signaling that this policy may be extended further to the next year, decreasing attractiveness for the U.S. dollar as these measures are mostly used for economies facing recovery complications. The Japanese yen, a leading refuge currency together with the greenback, was the only one among 16 main traded currencies which did not gain versus the dollar, as risk appetite returned to equities and commodities markets paring much of yen’s last week advance versus higher-yielding options.

The Federal Reserve tone is definitely not helping the dollar to remain bullish as specially regarding interest rates, the U.S. central bank position is extremely dovish, not mentioning a rate hike for a foreseeable date, which is negative for the dollar’s outlook since several other currencies around the world are finding its way out of recession and announcing rate increases, attracting capital flows based in the U.S. to these nations.

EUR/USD traded at 1.4970 as of 13:05 GMT from an opening rate of 1.4860 yesterday. GBP/USD rose to 1.6624 from 1.6482.

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