The US dollar gained against its major counterparts on Monday after Federal Reserve chairman Ben Bernanke indicated that further monetary stimulus was ‘highly unlikely’ to occur.
The greenback was up against the euro during early European trading, with EUR/USD falling to a three-day low of 1.4271.
On monetary policy, the Federal Reserve left rates unchanged signaling its intention to end QE2 as scheduled while maintaining its policy of reinvesting maturing securities without giving any hint of QE3.
“We do not question the possibility that conditions could become so unfavourable that the economy might need an extra something, but would humbly suggest that if so, QE is not the answer,” said Societe Generale in a note.
However, the Federal Reserve noted that the US economy is slowing down in mid-2011. The labor market is doing worse than anticipated with the housing market continuing to struggle, and consumer spending remained constrained.
Since 2007 the U.S. Dollar value has declined by over 30% making everything from gasoline to anime much more expensive. The Quantitative Easing that the Federal Reserve has done over the past 2 years has only exacerbated the situation. The fact that the Fed has said that a QE3 is unlikely is good news for currency markets and for our economy as a whole.