Federal Reserve Announces Fresh Round Of Quantitative Easing

The Federal Reserve fulfilled most analysts' expectations yesterday when it announced that it would pump $600 billion into the US economy between now and June 2011. The move is designed to stimulate the US economy, helping to address the US unemployment situation which stands at 9.6% and lead to greater US domestic demand. The money will be used to purchase long-date maturity government bonds. This move makes government debt cheaper; higher bond demand means reduced yield and should make other asset classes (stocks, for instance) more attractive, stimulating investment in the markets. The stock market response in the US was muted with the Dow Jones rising by just 26 points to close at 11215. However, this is the highest closing figure seen for two years.

Pound Sterling – UK Markets

Yesterday's close saw £1 buying €1.149, a gain of 0.5% on the day. In overnight and morning trading, Sterling has retreated sharply against the Euro and is currently trading at €1.1361 (at 10:30 GMT). The Bank of England will announce its interest rate decision today and whether it will embark on fresh quantitative easing measures of its own to stimulate the UK economy. The MPC is expected to leave UK interest rates on hold. The Pound has risen against the Dollar since the Federal Reserve announcement and is currently trading at $1.6181 (at 10:30 GMT).

US Dollar – US Markets

In the wake of the mid-term reversals for his party, President Obama has promised to find common ground with his Republican opponents to tackle the problems of the economy and unemployment. Quantitative easing was expected to cause further depreciation of the US currency against the other majors and the Yen. Whilst there has already been a dip against the Euro and Sterling, currently the Dollar has not fully reversed yesterday's gains against the Yen. It is currently trading at ¥80.975 (at 10:30 GMT).

Euro – European Markets

The Euro closed flat against the Dollar yesterday at $1.4014. Currently, the Euro is trading at $1.4243 (at 10:30 GMT) as the markets react to yesterday's Federal Reserve decision. The European Central Bank decision on interest rates is due today and is widely expected to remain unchanged. The Portuguese government has passed an austerity budget after the opposition agreed to abstain from the vote. The measures aim to reduce the deficit to 4.6% in 2011 from its current level of 7.3%.

Other Currencies – Highlights

The Organisation of Economic Cooperation and Development (OECD) has suggested that richer, developing countries should spend surpluses on their own citizens rather than on investing in Western debt. OECD fears that initiatives designed to rebalance currencies would fail unless nations adopted far reaching, fundamental reforms at home first. They cited the need for such countries to develop their own financial markets and establish or enhance social security measures. For a live quote or to tell us about your foreign exchange requirements, please call us on +44 (0)20 7740 0000.