Currencies Update- USD Declines Against Major Currencies On Account of Fed Maintaining Low Interest Rates

The US Dollar depreciated against all major currencies, after the US Federal Reserve Chairman, Ben Bernanke, announced that the Fed shall continue with its expansionary monetary policy and maintain overnight lending to banks between 0 and 0.25 percent. The Euro-USD exchange rate rose by 0.4389 percent to its value of 1.4853, while the USD-JPY exchange rate fell by 0.5757 percent to its value of 81.6840.

The Dollar Index, which measures the value of the US Dollar against six other major currencies, fell to its lowest level since July 2008. In contrast to the Fed’s decision to keep very low interest rates, Asian central banks are implementing contractionary monetary policies by keeping high levels of interest rates. This has led to a decrease in risk trading on the US Dollar and a transfer of funds to these Asian countries. Furthermore, Asia’s developing economies are expected to expand by 8.4 percent this year, in contrast to the US economy’s expected growth rate of 2.8 percent. This has led to reduced investor confidence in the US Dollar gaining in value anytime soon, thereby contributing to the debasement of the US Dollar.