The USD was crushed following the Fed's announcement that it will buy $300 bio of longer-dated US Treasury securities, an action known as quantitative easing that is loosely translated as 'printing money.'  In addition, the Fed announced it would further expand its balance sheet by buying up to an additional $750 bio of agency mortgage backed securities, and another $100-200 bio of agency debt, bringing the total planned new expansion of the Fed's balance sheet potentially to $1.25 trillion, a near doubling in size.  The announcement caught markets off-guard as most expected the Fed to wait for the TALF program to begin and judge the results before undertaking fresh measures.  The initial reaction was to hammer the USD on fears the move amounts to a devaluation of the currency--the printing money idea--as well as on concerns the Fed is desperate and running out of options to restore consumer credit.

EUR/USD surged from around the 1.3120 level to a high around 1.3500, bringing the day's advance to nearly 500 pips from yesterday's close around 1.3020.  GBP/USD recovered from earlier losses on weak jobs data and rebounded from a low around 1.3850 to 1.3950 at the time of the Fed announcement, ultimately gaining to a high near 1.4300.  USD/JPY dropped from 97.70, already down from 98.50, to a low near 95.60, before recovering to settle near 96.20.  The USD also fell to varying degrees against all other major currencies as well as against emerging market currencies. US Treasuries soared higher, with the yields on 10-year notes dropping by around 50 bps to 2.50%.  Gold also reversed earlier losses to around $883/oz, rallying nearly $55/oz after the Fed's announcement, on fears that such massive borrowing will hurt the USD and lead to inflation in the years ahead.  Stocks gained, but not nearly as strongly as other markets moved, with the S&P 500 closing up about 2%.

Upcoming data releases:

  • 3/18/2009  23:50  JN  All Industry Activity Index (MoM)  JAN  -2.70%  -2.10
  • 3/19/2009  0:00  AU  Westpac-ACCI 1st-Qtr Survey of Industrial Trends (Table)  19-Mar   
  • 3/19/2009  0:30  AU  Dwelling Starts  4Q  - -  - -
  • 3/19/2009  0:30  AU  RBA Foreign Exchange Transactn  FEB  - -  - -
  • 3/19/2009  0:30  AU  Preliminary BoP Imports MoM sa  FEB  -8.00%  - -
  • 3/19/2009  5:30  JN  Tokyo Dept. Store Sales (YoY)  FEB  -9.60%  - -
  • 3/19/2009  5:30  JN  Nationwide Dept. Sales (YoY)  FEB  -9.10%  - -