U.S. Dollar Index Approaches 7 Month High on Fed Announcement

By: Barbara Zigah

The U.S. Dollar rose toward a 7-month peak against other major currencies following the Federal Reserve’s unveiling of the latest weapon in their arsenal; one which they hope will stimulate the sluggish U.S. economy. Operation Twist is slightly different from the Fed’s previous quantitative easing measures in that it will shift the Fed’s portfolio with an emphasis on long-term debt. Most analysts hadn’t expected that the Fed would be willing to undertake more “straight” QE, though the scope of Operation Twist did take the markets by surprise.

With the move, risk appetite was sharply diminished, and commodities and commodity-linked currencies fell sharply as a result. As reported at 12:02 p.m. (JST), the Euro slipped against the U.S. Dollar nearing the 7-month trough of $1.3495; most recently, the EUR/USD pair was trading at 1.3539. The Australian Dollar moved as low as 1.0065 against the greenback, the lowest price since August 9th and was most recently trading at 1.0023.

The U.S. Dollar Index, which gauges the greenback’s strength against a weighted basket of major currencies, rose to 77.956 .DXY, the highest price in almost 7 months.

Now that the Fed meeting is finished, attention will return to the Eurozone and the ongoing troubles there, with the most worrying aspect Greece’s ability to get their next tranche payment of the emergency bailout.

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