Daily Forex Outlook: Dollar (USD) Predictably Soft Following Fed Decision

on Dec 13, 2012

With the US Federal Reserve announcing a brand new round of monetary stimulus, the greenback unsurprisingly weakened against most major counterparts. Concerns that the Fed’s measures will debase the US currency in turn lifted the Australian and the New Zealand dollar. Japan’s currency was also under pressure, touching multi-month lows against the US dollar and the euro with polls suggesting victory for the Liberal Democratic Party (LDP) at the forthcoming December 16 election in Japan.

**Greenback Weakens on Fed Action**
The US dollar weakened on December 13 after the Fed unveiled fresh monetary stimulus, as reported by Reuters. The dollar index slipped to a one-week low of 79.711 following the Fed decision and last stood at 79.891. As analysts expected, the US central bank said it would keep buying $45 billion of government bonds each month after the expiry of the “Operation Twist” programme, in addition to buying $40 billion a month in mortgage-backed securities.

“This is as aggressive as anyone could have imagined. The Fed is dovish and the markets have responded with a weaker dollar,” commented Marc Chandler, global head of currency strategy at Brown Brothers Harriman, as quoted by the Financial Times. “I think the dollar is facing pressure now until the end of the year.”
Reuters reports that following the Fed news, the euro (EUR) hit a one-week high of $1.3098, whereas the pound (GBP) advanced the most in six weeks, hitting $1.6173. As reported by Bloomberg, the Australian dollar (AUD) strengthened to almost a three-month high of $1.0586, while its New Zealand counterpart (NZD) rose 0.5 percent to 84.36 US cents.

**Yen Extending Losses**
The Japanese yen, however, bucked the trend and dropped to a nine-month low against the US dollar. Reuters reports that the greenback rose by as much as 0.5 percent to ¥83.59, nearing its high of ¥84.187 observed in March. The yen also lost ground versus the pound, which bought ¥134.88.
!m[Yen (JPY) Also Down Across The Board](/uploads/story/1025/thumbs/pic1_inline.png)Japan’s currency was dragged down with Shinzo Abe’s LDP leading in opinion polls ahead of the general election during the weekend. “It’s probable enough that expectations for further easing by the BOJ would trigger selling in the yen,” noted Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd, as quoted by Bloomberg. “The key is how Abe will act toward the BOJ after the election.” Mr Abe has called for unlimited monetary easing by Japan’s central bank to revive growth.

**SNB Statement**
The Swiss franc (CHF) was little changed on December 13, with the Swiss National Bank (SNB) maintaining the currency ceiling at 1.20 per euro and keeping its benchmark interest rate at zero percent.
“The Swiss franc is still high. An appreciation of the Swiss franc would compromise price stability and would have serious consequences for the Swiss economy,” the SNB said in a statement, published on its website. “Consequently, the SNB will continue to enforce the minimum exchange rate with the utmost determination. It is prepared to buy foreign currency in unlimited quantities for this purpose.”
Bloomberg reports that the franc traded at 1.2108 versus the euro following the SNB statement.


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