Fed move spurs weakness in dollar

NEW YORK - The dollar fell against other major currencies yesterday, a day after the Federal Reserve announced it would start buying more than $1 trillion in long-term government bonds and mortgage securities.

The euro soared against the dollar to $1.3652 from $1.3424 late Wednesday in New York, reaching its highest since early January. That meant it took about two cents more yesterday to buy one euro than it did on Wednesday.

The British pound jumped to $1.4537 from $1.4223.

The dollar also fell sharply against the Japanese currency, buying 94.45 Japanese yen yesterday compared with 96.31 yen the day before.

The Fed's actions announced Wednesday include a massive bond-buying program that will extend over the next six months. The Fed will also step up its purchases of mortgage-backed debt securities in an effort to lower rates on consumer debt.

By buying up bonds and other kinds of debt, the Fed will be essentially adding to the supply of dollars in the financial system, which foreign-exchange traders fear could weaken the value of the dollar against other major world currencies such as the pound, euro, and yen.

The purchases also could trigger inflationary pressures, another factor that could undermine the dollar.

Bank of New York Mellon Corp. currency analyst Michael Woolfolk said he expected that any dollar weakness as a result of the Fed's actions would be temporary. The timing of the Fed's announcement was "unfortunate" for the dollar, he said, coming on the heels of a rally in stocks and improving sentiment about the U.S. economy.

Analysts also raised concern about the effects the Fed's actions might have on prices in the U.S. Treasury market. Morgan Stanley currency strategist Ron Leven said foreign investors might resist buying U.S. debt if they feel it is not fairly valued.

The buck has dropped nearly seven cents against the euro in the last two days.