The USD: This Week So Far

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The USD took a heavy beating this week after announcements from the Federal Reserve failed to encourage confidence in the still-struggling US economy.

On Wednesday, the Fed announced that it would maintain interest rates at 0.25%. While the announcement was not surprising, what contributed to the USD’s dive was the Fed’s decision to retain its loose monetary policy. Aimed at encouraging investing and hiring among businesses, the US government is on a US85-billion bond buying program, a decision that has done nothing to help the currency to regain its strength.

In a statement, the Federal Reserve stated that, “Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated.  Household spending and business fixed investment advanced, and the housing sector has strengthened further, but fiscal policy has become somewhat more restrictive.”

Inflation levels are also below the US government’s objective, although long-term expectations remain stable.

The USD thus fared poorly against major currencies due to the Fed’s decision. It fell, for example, against the euro after Cyprus rejected a controversial bailout package and made indications that it might turn to Russia for assistance. The bailout package included a provision that would levy depositors of Cypriot banks a 6.7%-9.9% tax depending on the size of their deposit. Due to this provision, the country might consider turning to Russia for assistance where a considerable number of citizens hold accounts in Cypriot banks.

The USD also fell against the GBP. The GBP/USD pair was traded at 1.5110, up by 0.08%. USD/CHF, meanwhile, dipped by 0.28% to 0.9442. Overall, the dollar index fell by 0.20% at 82.99.

On the bright side, the USD rose against a number of currencies in the Pacific. The USD/JPY was up by 0.94% at 96.06, AUD/USD up to 0.08% at 1.0378, and the NZD/USD fell by 0.25% to 0.8226.

For more currency news, be sure to check out our FX Trading Tips regularly.

By FX Strategy Team, Published on 21st of March 2013
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