Dollar falls versus euro following Fed stimulus

The dollar edged lower versus the euro on Wednesday following the Federal Reserve’s decision to extend its monetary stimulus, stating it was prepared to do even more in order to help a flagging US economic recovery.

The Fed expanded its ‘Operation Twist’ scheme, an attempt to keep borrowing costs low by buying long-term securities and selling short-term ones. Investors had widely anticipated the move. The central bank also cut its US economic growth forecasts. In a press conference after the meeting, Chairman Ben Bernanke said that the Fed would consider additional asset purchases should the economy require further support.

The dollar initially rallied on the back of the announcement as a number of investors were disappointed that there was no indication of another wave of quantitative easing. That decision also affected riskier, growth-related currencies like the euro and Australian and Canadian dollars, although the move faded.

New York-based Forex.com senior currency strategist Chris Tevere said that while the market was hoping for more from the central bank, their significant downgrades to employment, inflation and growth certainly keeps alive the possibility of outright quantitative easing (QE3) launching later in the year.

The euro was last standing at $1.2700, rising by 0.1 per cent since Wednesday, having fallen to a session low of $1.2636 on the back of the Fed announcement.