FX round-up: Dollar plunges after Fed rate outlook

Date: Thursday 26 Jan 2012

The dollar turned lower against major currencies as the Federal Reserve surprised markets with its pledge to keep interest rate close to zero until late 2014.

The Federal Open Market Committee said while the US economy was expanding moderately, the US unemployment rate was still elevated and as such the economy still faced "significant downside risks."

In recent months the dollar has been gathering momentum on stronger than expected US economic data. However the Fed's announcement that interest rates would remain low for some time sent many dollar traders towards the door. The central bank also said it stands ready to implement more quantitative easing if the outlook worsens.

The euro briefly hit $1.31 before easing to $1.3091 from $1.2985 on Tuesday after the Fed announcement. The single currency had started the session on weak footing as talks between the Greek government and creditors remain unresolved.

The dollar index, which measures the US currency against a basket of six others, declined to 79.562 from 79.852 the previous session in US trading.

Against the yen, the greenback was little changed after data showed a bigger than expected Japanese trade deficit. It is the first recorded deficit in over 30 years. The dollar hovered around ¥77.78 versus ¥77.74 before.

Sterling remained firm and traded at $1.5645 from $1.5605 on Tuesday despite a 0.2% quarterly contraction in fourth quarter GDP. The figures increase the odds of the Bank of England expanding its quantitative easing programme in the next few months.

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