Fed Announces $40bn QE3 Programme, Sending GBP USD Higher And Pressurising GBP AUD, GBP NZD & GBP ZAR Exchange Rates

September 14, 2012 - Written by Minesh Chaudhari

STORY LINK Fed Announces $40bn QE3 Programme, Sending GBP USD Higher And Pressurising GBP AUD, GBP NZD & GBP ZAR Exchange Rates

Yesterday afternoon’s announcement by the US Federal Reserve that it would be resuming its Quantitative Easing policy has seen global stocks rally strongly, as institutional investors acted rapidly to shift their assets out of the safe haven of the US Dollar treasury bill. The Fed’s decision brought an immediate positive response from American equities traders which caused the benchmark broad-based S&P 500 to end the day up by 1.63%. Asian stock markets registered even greater gains during last night’s session. The scramble for risk-laden assets has taken the GBP USD exchange rate to its highest level for four months. The pair was trading around the 1.6100 mark in the lead-up to the US central bank’s keynote announcement, and by the middle part of the overnight Asian session, had broken to 1.6172. The fact that Cable has crept higher rather than shooting forward, as a response to the announcement, is indicative of investors’ expectations in the lead-up to the decision – the move was, at least partially, factored-in.

The shift out of the Greenback would surely have been more pronounced had the Federal Reserve chosen to commit more than the US$40bn per month which yesterday’s announcement revealed. This figure was at the bottom end of the expectation range of investors who felt that QE3 was on its way. However, the Fed has left the door open for a ramping up of its latest QE programme at a moments’ notice – Fed Chairman Ben Bernanke left the door open for an increase to the $40bn at a future date, should market conditions warrant it.

As well as triggering downside pressure on the Buck, the US central bank’s announcement also served to elicit a surge of support for the world’s high-yielding commodity-driven currencies. The GBP AUD and GBP NZD exchange rates both saw a pronounced dip, into the 1.5200s and 1.9300s respectively, during the overnight session. The South African Rand was also well-bid, causing an easing of the GBP ZAR exchange rate. Up until the Fed announcement, the Rand had been under heavy selling pressure thanks to fears that South Africa’s bloody labour market dispute might escalate.

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