Thursday March 19, 2009 - 09:38:31 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar nurses mammoth loss after Fed opens taps
* Dlr attempts poise after biggest 1-day slide since 1985
* Fed stuns mkts; decides to buy long-term Treasuries
* Profit-taking tempers dollar's losses for now
* Euro/dlr hits 2-month high, more gains round the corner
(Changes dateline, byline, adds quotes, new prices PVS TOKYO)
By Veronica Brown
LONDON, March 19 (Reuters) - The dollar attempted to recover
its poise on Wednesday, after its biggest one-day loss since at
least 1985 as the Federal Reserve stunned investors by saying it
would buy long-term debt in an effective printing of money.
The Fed will purchase $300 billion of long-dated Treasuries
over the next six months, its first large-scale purchases of
government debt since the early 1960s, while also boosting
buying of mortgage-backed securities and agency debt in its bid
to rescue the economy. [ID:nN18343369]
The move raised risks that a sharp expansion of the Fed's
balance sheet -- which has already doubled in size in the past
six months -- would lead to oversupply of the world's main
"We'll have to see how this pans out, but ultimately the Fed
are printing paper, the UK are printing paper, the Swiss are
printing paper, the Japanese are printing paper -- they are all
at it and I don't want to buy those currencies," said David
Bloom, global head of FX research at HSBC markets in London.
"I don't believe in the argument that its going to create
economic growth and you will get portfolio flows -- forget it,
they are sorting out a crisis," he added.
The dollar's cachet as a refuge from risk also melted as
stock markets cheered the Fed's attempt to resuscitate lending.
The vix "fear gauge" of equity market volatility fell to its
lowest since late January on Wednesday.
U.S. Treasuries surged, causing the biggest one-day drop in
10-year yields since the 1987 stock market crash, compounding
the dollar's woes <US10YT=RR>.
The dollar index, a gauge of its performance against a
basket of major currencies, was flat at 84.177 .DXY after a 3
percent slide on Wednesday -- its biggest one-day drop in at
least a quarter of a century.
The euro eased as investors booked profits after it jumped
3.8 percent on Wednesday for its biggest one-day rise since its
launch in 1999, according to Reuters data.
The single currency hit a two-month high of $1.3536 on
trading platform EBS early in the global session. It was last
down 0.2 percent at $1.3476 <EUR=>.
Against the yen, the dollar was broadly steady at 95.75 yen
<JPY=> after falling almost 3 percent on Wednesday.
FURTHER DOLLAR WEAKNESS?
ING strategists said the euro would be a major beneficiary
of the Fed's 'shock and awe' policy, adding that new dollar
supply and debt monetisation meant a run-up to the $1.40 area
could be on the cards even though the single currency bloc faces
its own problems.
"Those positive on USD are left to consider...if market
optimism will prove short-lived and/or whether the dollar is on
a long-term trend appreciation," ING said in a note to clients
Daily technical charts show that the euro now faces
resistance at $1.3635. Above that lies the 200-day moving
average near $1.3900.
The Fed is not alone in conducting large-scale buying of
government debt. The Bank of England is buying 75 billion
sterling of gilts and the Bank of Japan on Wednesday announced
it would increase its purchases of Japanese government debt.
The Swiss National bank last week shocked investors by
combining a rate cut with FX and bond market intervention to
keep interest rates low.
The European Central Bank has mulled non-standard policy
measures after cutting interest rates to a record low 1.5
percent in March. [ID:nLI37571] But many don't expect to see
quantitative easing implemented soon.
(Additional reporting by Masayuki Kitano in Tokyo; Editing by
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