Dollar Surges as Federal Reserve Tapers Bond Purchases

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March FOMC Statement Recap

Dollar Surges as Federal Reserve Tapers Bond PurchasesThe U.S. dollar surged on Wednesday as it widened early advances against the yen and the euro after the Federal Reserve scaled back bond purchases and blamed the harsh winter weather for the weak performance of the American economy.

The dollar index surged 0.8 percent to 80.056 while the yen plunged 1 percent after the Fed concluded a two-day session by revealing that it would go ahead with its plans to end the quantitative easing program (QE) otherwise known as the stimulus program.

It also announced that interest rates will remain low despite the economic slowly rising from the ruins caused by the financial crisis nearly six years ago.

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“It’s a little bit more hawkish than people expected,” said Shaun Osborne, foreign exchange strategist at TD Securities in Toronto. “They seem to see interest rates rising sooner rather than later. … This is helping the dollar.”

Besides cutting back its monthly bond purchases from $65 billion to $55 billion, the Federal Reserve said it will continue maintaining interest rates at low levels despite the revival of the U.S. job market and the inflation rising to its target.

Before Federal Reserve’s Chair Janet Yellen announced the decision, the dollar was already up against the euro and the yen, but surged sharply afterwards. The dollar was up 1.2 percent in the afternoon at 102.55 yen to the dollar. The euro pared its gains against the dollar, and was trading 0.83 percent lower at $1.3816 on Wednesday.

The Swiss franc also declined 1.05 percent against the dollar to finish at 0.8820 franc to the dollar, while the UK Sterling also dropped 0.4 percent to trade at $1.6527 in afternoon New York trading.

To contact the reporter of this story; Jonathan Millet at john@forexminute.com