USD Down Across the Board on QE4

The U.S. Dollar was clearly on the back foot during the Asian trading session after Ben Bernanke, the chief of the U.S. central bank, confirmed expectations of another round of stimulus that was quickly dubbed QE4, an announcement which broadly weakened the greenback. Upon the expiry of Operation Twist, the central bank will purchase $45 billion each month in government bonds. Only the Japanese Yen was softer as investors anticipate more liquidity from the central bank as the likely new political leadership has promised.

While markets had expected the Federal Reserve to announce another quantitative easing program, what was surprising is that the policymakers this time tied their scheme directly to the U.S. economy, specifically inflation and unemployment data. Nonetheless, the Fed’s 2013 projections were unchanged as the central bank’s intent to hold interest rates at the current near zero levels through mid-2015 was not modified. According to one currency strategist, a weak U.S. Dollar environment is consistent with their analysis that the Fed will substantially expand their asset purchases, and the Fed’s eventual policy exit is far in the distant future.

As reported at 11:46 a.m. (JST) in Tokyo, the U.S. Dollar Index fell to a 1-week trough after the announcement, trading at one point at 79.711 .DXY before recovering to 79.92 .DXY. The EUR/USD pair hit a 1-week peak of $1.3098 before retreating to $1.3061, but was well off $1.3127, the 7-week pea struck last week.