Dollar Falls Sharply On Fed Announcement

The US dollar fell sharply in late trade last night as the US Federal Reserve ended it's two-day meeting announcing some surprise swingeing new measures in an attempt to stimulate lending and jump-start the economy.

The package totals almost $1.2 trillion of mortgage-related & treasuries.

With US interest rates effectively at zero, like the Bank of England, the Fed has had to resort to "other measures" to help the economy. Whilst this may be along the lines of what the market had expected, the scale of the package was not.

Wall Street was taken by surprise, jumping almost 200 points at one stage, before settling 90 points higher with the biggest beneficiaries of the move, the banks, leading the way.

The largest chunk of the money, $750 billion, will be used to buy mortgage-backed securities. The idea being that this will free up money to be lent back to US house-buyers to stimulate the housing market. An additional $100 billion will go to government-backed agencies like the ailing Freddie Mac, and $300 billion will buy US Treasuries.

Of course all this comes at a cost, the US dollar fell sharply hitting a two-month low against the euro.

Sterling jumped around 3 1/2 cents, from $1.39 to $1.4250 on the news, but the pound isn't out of the woods just yet. It continued to decline against the euro currently standing at 94.65 pence, or one euro is now worth £1.0570.