Federal Reserve Announces New Quantitative Easing Program

ForexNewsNow | Published on November 3, 2010 at 3:55 pm

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Ben Bernanke US Federal ReserveNEW YORK (Forex News Now) – Today, in one of the most anticipated realtime forex announcements this year, the Federal Open Market Committee announced a new eight-month stimulus program to purchase $600 billion in government bonds until the middle of 2011.

The FOMC – the component of the Federal Reserve tasked with initiating monetary policy – stated it will purchase approximately $75 million worth of long-term Treasury bonds and assets per month for the next 8 months, in an attempt to stimulate a flagging and sluggish economy that has so far resisted other measures and policies.

Analysts largely expected the Fed to announce a $500 billion, six-month program, so the realtime forex news released today is higher than expected.  The policy decision is still well below initial estimates of $1 trillion worth of bonds purchased, though, leading some to ponder the future for the US economy and dollar with a moderate program.

Commenting on the need for the policy decision, the Federal Reserve said in a statement today, “Although the committee anticipates a gradual return to higher levels of research utilization in a context of price stability, progress toward its objectives has been disappointingly slow.”

The Fed also stated it would periodically review the state of the economy and the program and revise the program’s measures as need depending on how the economy responds.

In response to this announcement, the dollar fell as expected against the euro, pound, and other currencies, paring gains achieved earlier with a slew of positive realtime forex reports on the economy.

Currently, the dollar is down 0.48% against the euro, trading at 1.4103 after gaining on the euro earlier in the trading day.  The dollar also is down 0.29% to 1.006 on the Canadian dollar, 0.43% to 1.6112 on the pound, 0.08% to 0.9999 on the Aussie, and 0.88% to 0.7774 on the New Zealand dollar.

The dollar is up, though, against the yen, picking up 0.83% to reach a session high of 81.31.

The question seems to be this: What long-term impact will the FOMC’s announcement have on the dollar?

Anyone’s best guess has the dollar falling gradually over the rest of the year and into the beginning of 2011 due to a devaluation of the currency caused by more spending.  With that being said, the amount is not nearly as large as that $1 trillion mark that was originally expected and feared by dollar-centric traders.

This, coupled with uncertainty brewing for the euro and yen, could see the dollar recover faster than expected – especially if the Fed’s decision positively impacts the economy over the next two quarters. The initial response has not been as cataclysmic as expected, either, suggesting that the news has been priced in to a large extent.

The U.S. dollar index is currently down 0.06%, to 76.679, but is threatening to pare those losses and pick up overall.

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