This is in addition to buying $40 billion a month in agency mortgage-backed securities. For the first time the Fed tied its monetary policy to a specific target, saying it will keep benchmark rates near zero until the jobless rate hits a target of 6.5 percent, at which point it will reconsider its policy stance. The rate is currently at 7.7 percent, near a four-year low.
Market expectations for the program were well flagged by investors and led to losses for the greenback ahead of the Fed's decision. The extra spending floods financial markets with cash, reducing the buying power of the US currency. While the dollar has weakened, one veteran market analyst says the magnitude of the Fed's moves were probably not fully priced into the market.
"I don't think the bearishness will manifest itself over the next week, but I think it will build because the market will digest the implications of the Fed's balance sheet expanding by almost 40 percent on a year-on-year basis," Steven Englander, global head of G10 currency strategy at Citi.
"Considering the meagre success of the past four years in fostering economic growth with asset purchases, the Fed finds itself in a policy box with no exit, unable to improve the economy but afraid to temper its stimulative policies for fear that the economy will collapse," said Joseph Trevisani, chief market strategist at World-wide Markets in Woodcliff Lake, New Jersey.
In the aftermath of the Fed's announcement, which caused a sharp decline in US Treasuries prices and a surge in US stock prices, the euro climbed to a fresh intra-day high of $1.3096, before slipping back to $1.3064, a gain of 0.46 percent, according to Reuters data. As the dollar fell against the euro and slumped against higher-yielding currencies such as the Australian and Canadian dollars, it maintained its advance against the Japanese yen.
The greenback hit a near nine-month high after the Fed's decision. Investors are betting the Bank of Japan will implement more aggressive monetary easing of its own after an election on Sunday that is expected to yield a victory for the Liberal Democratic Party. LDP leader Shinzo Abe has called for more aggressive monetary easing in Japan to revive the stagnant economy.
The dollar last traded at 83.14 yen, up 0.76 percent and just off the session high of 83.22, according to Reuters data. The euro, already advancing against the yen, surged to a 1.25 percent gain to trade around 108.62 yen, its best level since April 4. "It's additional (Quantitative Easing), which should be risk positive at the margin. Yields are backing up a bit, which should be supportive for dollar-yen," said Brad Bechtel at Faros Trading in Stamford, Connecticut. The Australian dollar rose to three-month high against the greenback. The New Zealand dollar climbed to its best levels since February 29, while the US dollar slipped to an eight-week low against its Canadian counterpart.