Fed stimulus announcement sees dollar lose ground

The Federal Reserve announced on Thursday after its two-day policy meeting that it plans to inject fresh monetary stimulus into the US economy, in news that did not surprise the market and sent the dollar tumbling against most major currencies.

The US central bank revealed that its initial plan is to buy $40bn of mortgage debt monthly as well as other assets until the employment rate in the US picks up. Interest rates, currently at an all-time low, are also set to remain at the same level until mid-2015 at the earliest.

Many market players have been prepared for the Fed to announce a third round of quantitative easing after it revealed last month after a summit in Jackson Hole, Wyoming, that it was prepared to act accordingly to help bolster the economy. However, bond-purchasing is widely regarded as negative for the greenback as it lowers its value.

The euro dropped at the beginning of the session to a low of $1.2856 on the back of the announcement, but rebounded to $1.3001 before stabilising around the $1.2984 mark, a 0.7 per cent rise on the day. The dollar was last seen at 77.48 against the yen, a 0.4 per cent fall on the day, after earlier having sunk to a seven-month trough of 77.11.