By Sarah Turner, MarketWatch
SYDNEY (MarketWatch) — The dollar weakened further against rivals in Asian hours on Friday, as currency-market participants assessed a large-scale effort by the Federal Reserve to bolster the U.S. economy, while a meeting of Europe’s finance ministers loomed..
The ICE dollar index DXY -0.20% , which measures the greenback against a basket of six currencies, traded at 79.076 from 79.254 in late U.S. trading on Thursday.
The euro EURUSD +0.3168% reached $1.3012, from $1.2992 late the previous day. The euro hasn’t closed above $1.30 since early May, according to FactSet.
The euro jumped and the U.S. dollar index fell on Thursday after the U.S. Federal Reserve said that it would buy mortgage-backed securities at a pace of $40 billion per month.
The Fed also intends to keep the U.S. benchmark short-term interest rate at nearly zero until mid-2015 and continue buying long-dated securities and selling short-dated securities.
The Fed said it would keep low rates in place for a “considerable time,” even after the economy strengthens.
“Expectations in the foreign exchange markets were mixed on whether or not the Fed would deliver,” said BNP Paribas currency strategist Mary Nicola.
“Our BNP overall U.S. dollar position indicator shows that U.S. dollar positioning remains neutral, and not similar to the bearish positioning seen during QE1 and QE2. Thus, there is greater scope for further U.S. dollar weakness in the weeks ahead,” she said.
“The decision by the Fed to employ open-ended QE affirms that monetary policy in the U.S. will be loose for a long time. With the U.S. dollar likely to return as the funding currency of choice, we are bullish on the commodity currencies and the British pound,” Nicola added.
Investors will also be watching out for news on Europe’s sovereign debt crisis with a meeting of the informal economic and financial affairs council (ECOFIN) in Cyprus on Friday.
Australia’s dollar AUDUSD +0.3356% reached $1.0585 after gaining sharply on Thursday to $1.0543, while the British pound GBPUSD +0.2557% traded at $1.6187, from $1.6154 late the previous day.
For the Japanese yen, Nicola at BNP said the Bank of Japan may act as well after the Federal Reserve move.
“As the Fed forges ahead with aggressive monetary policy, the Bank of Japan too, may be compelled to ease policy further on Sept. 19,” she said.
Against the Japanese currency USDJPY +0.2790% , the dollar bought 77.58 yen, from ÂĄ77.53 in late U.S. trading the previous day.
The dollar/yen currency pairing tends to be closely correlated to U.S. bond yields.
Sarah Turner is MarketWatch's bureau chief in Sydney.
