Hong Kong: The US dollar nursed large losses on Thursday, while Asian stocks and government bonds rallied after the Federal Reserve pledged to pump an additional $1 trillion into the ailing U.S. economy.
The Fed surprised investors by announcing on Wednesday it would buy $300 billion worth of US Treasuries - its first purchases of government debt since the early 1960s - as part of a move that also includes buying more mortgage and agency debt.
Gold fell on profit-taking after it surged in the previous session on investor worries about the potential inflationary effects from the Fed’s efforts to add funds to the financial system, while oil prices were boosted by the slump in the dollar.
Analysts are concerned that the expansion of the Fed’s balance sheet could weaken the dollar and trigger similar moves by other central banks, pressuring their currencies.
Central banks in Britain and Japan have already announced they would purchase their respective government debt, while the Swiss National Bank last week said outright it would sell francs.
“With the Fed now effectively undermining the dollar, the worry is that central banks are playing competitive devaluations,” said Tony Morriss, senior rates strategist at ANZ.
The euro climbed to $1.3536 on trading platform EBS, the highest since early January, but later shed its gains and was down 0.2% from late US trading on Wednesday at $1.3444.
That comes after the euro jumped 3.9% against the dollar on Wednesday according to Reuters data, its biggest one-day percentage gain since the launch of the single currency in 1999.
The dollar initially dipped against the yen, but later rebounded, rising 0.2% to ¥96.40 after dropping nearly 3% against the Japanese currency on Wednesday.
The US Treasury rally on Wednesday, which prompted the biggest one-day drop in benchmark yields since 1987, boosted regional bonds as well.
June 10-year Japanese government bond futures climbed 0.61 point to 139.46, the highest since 3 March.
Asian stocks also rallied given that a stronger US economy could help boost depressed exports from the region.
The MSCI Asia-Pacific stocks outside Japan climbed 1.4% as of 7am to their highest level in five weeks, though the Nikkei average lost 0.3%.