Reply #76: Dollar extends broad slide as Fed buys govt debt

[Ghost Dog]

Thu Mar 19, 2009 10:45am EDT NEW YORK, March 19 (Reuters) - The U.S. dollar extended a sharp sell-off on Thursday, a day after posting its biggest one-day loss against a basket of currencies since at least 1985, as investors digested Federal Reserve plans to buy Treasury debt.

The Fed said on Wednesday it will will purchase $300 billion of long-dated Treasuries over the next six months, its first large-scale purchases of government debt since the early 1960s, while also boosting buying of mortgage-backed securities and agency debt in its bid to rescue the economy. This raised concerns that an expansion of the Fed's balance sheet -- which has already doubled in size in the past six months -- would lead to oversupply of the world's main reserve currency, triggering the sell off. "Investors were already selling the dollar before the Fed, but the announcement seemed to have given a green light for more euro buying (and dollar selling)," said Marc Chandler, global head of forex strategy at Brown Brothers Harriman in New York. "This correction in euro-dollar seem to be moving towards the $1.40 level. I wouldn't be surprised if we hit that mark soon."

The euro rose to as much as $1.3694 <EUR=>, a two-month high, and by mid-morning was up 1.2 percent at $1.3670. The single currency jumped 3.8 percent on Wednesday for its biggest one-day rise since its launch in 1999, according to Reuters data.

The dollar index .DXY, a gauge of its performance against a basket of six major currencies, slipped 1.4 percent to 82.994 after a 3 percent slide on Wednesday -- its biggest one-day drop in about of a century, according to Reuters data. It earlier slipped to 82.880, the lowest since early January.

Against the yen, the dollar was 1.5 percent lower at 94.34 yen <JPY=> after falling almost 3 percent on Wednesday.

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ING strategists said the euro would be a major beneficiary of the Fed's 'shock and awe' policy, adding that new dollar supply and debt monetisation meant a run-up to the $1.40 area could be on the cards even though the single currency bloc faces severe economic problems. Daily technical charts show the euro faces resistance around $1.3635. Above that lies the 200-day moving average near $1.3900.

Commodity currencies such as the Australian dollar <AUD=>, Norwegian crown <NOK=> and Canadian dollar <CAD=> also rose on Thursday while many emerging market currencies such as Brazil's real <BRL=> and and the Mexican peso <MXN=> gained. "Emerging market currencies are not homogeneous and should be taken separately," said Chandler at Brown Brothers. "But for now, most seem to be rebounding sharply against the dollar."

/... http://www.reuters.com/article/marketsNews/idINN1941216120090319?rpc=44&sp=true
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