The Dollar drops as the Fed keeps interest rates on hold

The greenback fell against most major currencies as Federal Reserve officials retained their pledge to keep the main interest rate near zero for an “extended period,” encouraging demand for riskier assets. “The risk-on scenario continues,” said Andrew Busch, a global currency strategist at Bank of Montreal in Chicago. “They didn’t change ‘extended period of time’ and the stock market continues to rally. That’s bearish for the dollar.” The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then.
Thomas Hoenig, president of the Kansas City Fed, dissented for the second straight meeting. The EUR/USD is currently trading at $1.3775 as of 20:00pm, GMT, with a bullish trend.

The British pound rose broadly on Tuesday as robust UK housing data and political opinion polls triggered buying position on the Sterling. The UK currency climbed 1 percent on the day against the dollar, shaking off an initial slide on a report the European Commission would recommend the UK do more to cut its ballooning deficit. Analysts/investors expect fiscal concerns and political uncertainty to hit the pound, which has depreciated about 6 percent against the greenback since January. This has led to a pile up of short sterling positions. However, sterling was boosted by data showing a rise in UK house prices gathering pace in January and by opinion polls showing that an upcoming general election may result in a majority government, rather than a hung parliament. The GBP/USD is currently trading at $1.5250 as of 20:25pm, GMT, with a bearish trend.

Canada’s dollar reached its strongest level in almost two years versus the U.S dollar as the Federal Reserve’s pledge to keep interest rates near zero for an “extended period” boosted stocks and commodities. “It’s likely to put a bid to commodities and by extension commodity currencies, most notably the Canadian and Australian dollars,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “Ultimately by continuing to maintain interest rates low it will continue to promote growth and what we get with that is seen through rising equities.” Canada’s central bank will raise its key overnight rate to 2.25 percent by the middle of next year, according to the weighted average of seven economist estimates in a Bloomberg News survey. The USD/CAD is currently trading at 1.0142 as of 21:00pm, GMT, with bearish trend.

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