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Further Fed bond buying could knock US Dollar

During today’s conference (scheduled to take place at 17:30 GMT) the American national bank is expected to outline a new round of bond buying in an attempt to boost the world’s largest economy.

This fresh round of asset buying is likely to run alongside the Fed’s current purchasing of mortgage backed securities to the tune of 40 billion Dollars a month.

The conference will conclude the US Federal Reserve’s two-day policy meeting.

During the meeting the main topic of conversation has been what step to take now that the ‘Operation Twist’ bond programme (where longer term bonds were switched with shorter term bonds) is almost at an end.

The looming ‘fiscal cliff’ is also a significant cause for concern as the White House and Congress have yet to reach an accord which would enable them to bypass 2013’s automatic spending cuts and tax hikes.

With the American economy beginning to flounder in the face of the global economic slowdown the Federal Reserve needs to encourage corporate and private spending/borrowing and keep interest rates down with more asset purchases.

Although the US employment rate fell to 7.7 per cent (and a four-year low) last month it appears that this could largely be the result of people dropping out of the workforce, due to giving up on finding work or retirement.

The Fed has vowed to continue bond buying until the outlook for the labour market picks up dramatically.

Industry experts are forecasting that the Treasury will purchase bonds worth between 30 – 50 billion US Dollars a month. If these predictions prove accurate they will have a significant effect on the Fed’s 2.8 trillion Dollar balance sheet.

As speculation regarding the Fed’s intentions began to mount the US Dollar fell against several of its most traded currency rivals. Typically, when the national bank engages in bond buying the American currency falls, so it could post further declines in the hours ahead.

The Federal Reserve is also expected to hold interest rates at their present level of below 0.25 per cent.

As of 14:45 pm

The Pound to Euro exchange rate is currently trading at 1.2375

The Pound to US Dollar exchange rate is currently trading at 1.6136

The Pound to Australian Dollar exchange rate is currently trading at 1.5300

The Euro to US Dollar exchange rate is currently trading at 1.3038

The Euro to Pound exchange rate is currently trading at 0.8079

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