Ah. Supply and Demand Does Work for the Dollar After ALl

Peter Garnham of the FT:>Dollar falls as haven status slips: The dollar resumed its fall against major currencies on Thursday after a sharp sell-off in the previous session following the Federal Reserve’s surprise decision to embark on a quantitative approach to monetary policy. The announcement by the Fed on Wednesday that it was to buy $300bn in long-term Treasuries surprised investors who were expecting the central bank to wait to see the effect of previously announced measures to ease credit conditions. >Sean Shepley at Credit Suisse said although this final step towards full-on quantitative easing in the US was desirable and ultimately necessary, it went against the grain of recent Fed commentary and came earlier than anticipated. He said the Fed decision was “significantly bearish” for the dollar for several reasons. “The decision will allow the Fed to reverse quickly the shrinkage in its balance sheet that has occurred in recent weeks and will allow the monetary base to begin expanding again,” he said. “The Fed’s commencement of significant purchases of US Treasuries probably involves taking foreign investors out of their Treasury holdings, at least indirectly, creating a need for these investors to acquire other US assets or to sell dollars.”>The dollar, which had its weakest performance against the euro since the creation of the single currency in 1999 in the previous session, fell further on Thursday. The dollar fell 0.7 per cent to $1.3616 against the euro, lost 1 per cent to $1.4451 against the pound , dropped 0.7 per cent to SFr1.1300 against the Swiss franc and eased 1.3 per cent to Y94.72 against the yen…

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