The US dollar slumped this week against most major currencies as the Federal Reserve initiated the third round of quantitative easing. The greenback managed to erase its previous losses against the yen as the Fed’s decision reduced demand for the Japanese currency as a safe haven. The dollar fell for the fifth consecutive week against the euro and the pound.
The US central bank announced that it begins purchases of mortgage-backed securities. The Fed also reiterated its pledge to keep the interest rate low, but changed the term from “through at least late 2014” to “mid-2015”. The announcement, though expected, weakened the dollar tremendously.
The biggest winner from the Fed’s monetary decision was the euro. The shared European currency was already strong from the previous week’s announcement of an bond-buying program by the European Central Bank. This week the 17-nation currency rallied to the highest level since May, even though it had a small correction on Monday.
EUR/USD climbed from 1.2810 to 1.3118 and its weekly maximum of 1.3167 was the highest since May 4. GBP/USD climbed from 1.6017 to 1.6253 (the highest level since April 30) before closing at 1.6224. AUD/USD advanced from 1.0370 to 1.0554.
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