USD Quantitative Easing

The market basically had a surprise when the Fed announced following its meeting that it will implement QE officially on Wednesday.

Besides using USD 300 bn to buy long term (LT) treasuries, the Fed will commit USD 700 bn more to purchase agency debt and other forms of Asset Backed Securities so as to bring down interest rates further and inject liquidity into the economy.

To do this, the Fed has to print more USD and bring it into the money supply, effectively depreciating the USD.

The results are telling, immediately the announcement, LT yields fell as investors bought treasuries in droves.

On Thursday, 30 yr mortgage rates dipped below 5%, a multi-year low.

And we in Singapore are complaining that home prices including (HDB 2.5%) interest are expensive? The median price of homes in the US is in dollar terms, the same as us ~ over 200 k.

The main impact on forex is that the USD was sold sharply as investors escaped the USD into other currencies.

EURUSD hit a high of 1.3738 for the week and the SGD followed EUR strength as usual, bringing the USDSGD pair to 1.5053 at the week's low.

GBPUSD topped close to 1.46.

On my last few postings, the EURUSD and GBPUSD had been flirting with only 1.30 and 1.40 respectively.

What a difference a week makes.