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Dollar plunges on Fed Treasury-buying plan
SAN FRANCISCO (MarketWatch) -- The U.S. dollar plunged against major rivals Wednesday afternoon following the Federal Reserve's decision to expand its financial rescue strategy to include purchases of $300 billion in longer-term Treasury bonds.
The dollar index (DXY:US Dollar Index Future - Spot Price DXY 84.48, -2.45, -2.8%) , a measure of the greenback against a basket of major currencies, fell to 84.573, down from 86.471 shortly before the central bank's announcement, and from 86.861 late Tuesday.
The euro rose to $1.3422, from $1.3105 before the announcement and from $1.3013 late Tuesday.
The dollar fell to 96.25 Japanese yen from 98.29 yen ahead of the Fed news and from 98.55 yen late Tuesday.
"The U.S. dollar has been crushed, even the emerging market currencies have rallied," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman in New York. "The key consideration might be that quantitative ease is currency-negative -- as it was for sterling, yen and Swiss franc."
"However, an alternative explanation is that with today's move the Fed has finally gotten ahead of the curve and this will boost confidence of a recovery later this year," Chandler said in emailed comments.
In its statement at the conclusion of its two-day policy meeting, the Fed indicated it's more pessimistic about the economic outlook. Officials removed language saying they expected the economy to recover later this year.
The central bank tweaked its other credit-easing programs by committing to buy more mortgage-backed securities and agency debt and include more asset-backed securities under a new credit facility starting this week.
A central bank buying its own country's securities raises the risk that it needs to print money to finance debt, leading to higher inflation. But the Fed's latest statement repeated that deflation was a risk to the economy.
A government report showed earlier Wednesday that consumer prices rose more than expected last month. U.S. consumer prices increased a seasonally adjusted 0.4% in February, the second increase in a row and the largest since July.