Dollar in broad sell off as Fed buys govt debt

The Fed said it will will purchase $300 billion of long-dated Treasuries over the next six months, its first large-scale purchases of government debt since the early 1960s, while also boosting buying of mortgage-backed securities and agency debt in its bid to rescue the economy.

This raised concerns that a sharp expansion of the Fed’s balance sheet—which has already doubled in size in the past six months—would lead to oversupply of the world’s main reserve currency, triggering the sell off.

Lackluster U.S. data early on Thursday, however, tempered some of the decline. The government said the number of U.S. workers on jobless benefits hit a record high, underscoring the severity of the U.S. economic recession. For details, see [ID:nN18440590]

Negative data has benefited the dollar in the past couple of months as investors buy the currency as a haven amid a global slowdown.

“The dollar did get a slight pop on the number,” said Nick Bennebroek, head of FX strategy at Wells Fargo Capital Markets in New York. But “the data’s impact should fade and the dollar should continue to weaken because the markets are still digesting the Fed’s decision on buying long-term treasury debt.”

The euro advanced to $1.3684 EUR, a two-month high, and by mid-morning was up more than 1 percent at $1.3656. The single currency jumped 3.8 percent on Wednesday for its biggest one-day rise since its launch in 1999, according to Reuters data.

The dollar index .DXY, a gauge of its performance against a basket of six major currencies, slipped 1.2 percent to 83.209 after a 3 percent slide on Wednesday—its biggest one-day drop in about of a century, according to Reuters data. It earlier slipped to 82.911, the lowest since January 9.

The dollar’s appeal as a refuge from risk also melted as stock markets cheered the Fed’s attempt to increase lending. Stocks rose in Europe on Thursday and Wall Street opened on a firm footing.

U.S. Treasuries also surged on Wednesday, causing the biggest one-day drop in 10-year yields since the 1987 stock market crash, compounding the dollar’s woes.