Dollar Weakens as Fed Maintains Stimulus

The US dollar paired its gains versus the euro and fell against other major currencies as the Federal Reserve decided to keep the interest rates at the record low level and to maintain its assets purchasing program.

The Federal Open Market Committee said in its statement today that “the economic recovery is on a firmer footing”. The FOMC added that the jobs market is improving, but the unemployment remains high. On the other hand the housing sector remains depressed. The Committee expects that the surging fuel prices may put an upward pressure on the inflation, but this influence will likely be temporary.

Despite some some positive sings in the development of the US economy the Fed continued its quantitative easing. The statement said:

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

The target range for the federal funds rate remained at the record low zero to 0.25 percent level.

EUR/USD rose from 1.3988 to 1.3999 as of 21:46 GMT today after it slumped earlier to 1.3855. USD/JPY fell from 81.67 to 80.73 following the advance to 82.01. USD/CHF dropped from 0.9241 to 0.9161.