Dollar Down after Bernake Projects No Change in SecuritiesApr 28th, 2011 | By Roy Rasmussen | Category: Business and Finance
The dollar fell to a 16-month low against the euro after Federal Reserve Chairman Ben S. Bernanke announced that the Fed’s Federal Open Market Committee (FOMC) will to continue expanding its holdings of securities in order to maintain price stability and promote employment. The Fed feels that although the economy is recovering in some sectors, recent inflationary trends are short-term, and signs indicate that long-term trends remain stable.
The economy is gradually improving, the FOMC says. Business investment and household spending are increasing.
However, some important sectors continue to lag behind the rest of the economy. Investment in nonresidential structures is slow. The housing market remains in recession.
Meanwhile, unemployment remains high.
At the same time, however, the price of food, oil, and general commodities has been rising, driven by world events. The FOMC evaluates this to be a temporary situation that will change as world events change.
Given the situation, the FOMC has decided that to maintain price stability and promote employment, it will continue its policy of expanding security holdings announced last November. The FOMC will maintain its existing policy of reinvesting principal payments from its securities holdings, and will complete purchases of $600 billion of longer-term Treasury securities by the end of the current quarter. The FOMC will maintain the target range for the federal funds rate at 0 to .25 percent. Adjustments will be made as new data is collected, with the aim of promoting maximum employment and price stability.
Analysts interpreted this announcement as signaling that the Fed will continue its current policy for some time, rather than following other G-10 partners who are following tightening trends. Accordingly, following the announcement, the dollar depreciated 0.9 percent to $1.4783 versus the euro at 4:19 pm in New York, down from $1.4644 yesterday. Earlier the dollar had dipped to $1.4795, the weakest level since December 2009. It was the seventh day in a row the dollar fell against the euro.
Meanwhile gold surged to record levels, sending gold exporter South Africa’s rand up. Gold futures advanced to a record $1,530.30 an ounce, and the rand rose up to 1.3 percent to 6.5876 versus the dollar.