Dollar rebounds against euro after Fed statement

AP News
Posted: Sep 21, 2011 4:19 PM
Dollar rebounds against euro after Fed statement

The dollar rebounded against the euro and other major currencies Wednesday after the U.S. Federal Reserve announced new plans to help boost the American economy.

The central bank said it will buy long-term Treasurys and sell short-term securities to help spur growth. The plan could lower rates for mortgages as well as those for consumer and business loans. The plan was expected by investors.

The euro slipped to $1.3667 late Wednesday from $1.3688 late Tuesday. The euro had been trading higher against the dollar for most of the day, reaching as high as $1.3797 before falling back after the Fed announcement.

Kathy Lien, director of currency research at GFT, said that investors were disappointed that the Federal Reserve didn't do more to help the economy.

"Part of the reason why they were so conservative was because they are holding onto the blind hope that this will be enough to jumpstart the U.S. economy," Lien said in a note to clients. "However investors clearly do not share the central bank's rosy sentiment."

Lien said investors began buying back dollars following the announcement because they are now expecting "a prolonged period of slower global growth."

Investors consider the U.S. currency to be a safe-haven currency, and they tend to buy it in times of global economic turmoil.

Elsewhere, the British pound fell to $1.5578 from $1.5732 Tuesday. It fell as low as $1.5556 early Wednesday, its lowest point since January 11. Weighing on the pound were minutes released Wednesday from the Bank of England's last rate-setting meeting. The minutes hinted that the central bank might buy government bonds to support England's economy. Policymakers at the central bank's September meeting said that weak economic data might make more action necessary.

Bond-buying would make the pound less attractive to traders. Interest rates would fall, limiting their returns on some investments. The money supply would increase, diluting the value of pounds held by traders.

In other trading Wednesday, the U.S. dollar rose to 0.8954 Swiss franc from 0.8889 Swiss franc. Published reports said that the Swiss central bank may set a weaker target exchange rate against the euro. The dollar also rose to 76.56 Japanese yen from 76.38 Japanese yen.

On Wednesday, the U.S. currency reached parity with the Canadian dollar for the second time this month. The U.S. dollar rose to 1.0035 Canadian dollar from 99.12 Canadian cents Tuesday.