US dollar during QEs18 September, 2012, 22:51. Posted by Zarathustra
US dollar, for a few years now, have been almost doing nothing despite all the ups and downs and all the talks about the total destruction of the value of the US dollar because of the large-scale asset purchases (LSAPs) conducted by the Fed. Trade weighted US dollar index is almost at where it was in 2008 before the collapse of Lehman Brothers.
US dollar index, however, did tend to fall during the periods of Fed’s balance sheet expansion, as the chart below shows (although these periods also happened to be periods of improving market conditions, or in other words, risk-on). We have left out operation twist as the balance sheet of the Fed remains unchanged through out. The announcement of QE-infinity, together with the improvement of the situation in Europe have already triggered weakening of the US dollar.
Source: Federal Reserve