NEW YORK: The dollar sank to a seven-month low on Wednesday after the Federal Reserve shocked investors by deciding to continue its massive stimulus program, citing strains in the U.S. economy.
In its statement, the Fed said it would await evidence of a more stable economy before adjusting the pace of its purchases. The market was widely expecting the Fed to reduce its $85-billion-per-month asset-buying scheme by at least $10 billion.
The Fed also downgraded its forecasts for the U.S. economy. It now sees growth in a 2 to 2.3 percent range this year, down from 2.3 to 2.6 percent in its June estimates. The downgrade for next year was even sharper: 2.9-3.1 percent from 3.0-3.5 percent.
“The Fed is data-dependent. It does not act because the market wants it to,” said Douglas Borthwick, managing director, at Chapdelaine Foreign Exchange in New York.
“I continue to believe that tapering will only come when the White House/Congress can introduce a plan to replace some of the easy money that quantitative easing provides. As we go into debt ceiling discussions, that is unlikely to happen, which means no tapering until the data warrants it.”
The dollar index fell as low as 80.376, the lowest since February 20. It was last at 80.481, down 0.8 percent.
The euro, meanwhile, climbed to a seven-month peak of $1.3486. It last changed hands at $1.3469, up 0.8 percent.
Against the yen, the dollar fell to 97.98 yen, a three-week low and by mid-afternoon trading, it was down 0.8 percent at 98.35. –REUTERS