The Federal Reserve has left the door open on further quantitative easing in the future, but it’s clear that such a move is not foreseen immediately. To put in somewhat pejorative terms, quantitative easing involves the central bank in question increasing the supply of money in circulation by, essentially, printing more. This money is given to financial institutes to purchase state assets and the commission that they make is supposed to feed through to the economy, improving liquidity. From the perspective of the currency markets, such a move makes the currency in question less valuable and so its exchange rate falls.
Given that the Greenback’s value (from a QE perspective) is likely to remain strong over the coming weeks and that the European sovereign debt crisis is still ongoing, the absence of a move from the Fed has put pressure on the Euro which has fallen to a two-year low against the Dollar. The situation was compounded by the decision of the European Central Bank to cut interest rates in a move to stimulate the Eurozone economy. The rate was dropped from 1 to 0.75% recently; it is intended to make it cheaper for businesses to obtain loans (except that the banks are currently reluctant to lend). Whilst this can be regarded as good news for the European economy, since inflation is in check, it means that forex investors holding Euros will see poorer returns on their assets in terms of interest on deposit.
The Dollar is now worth about what it was when the Eurozone was dealing with the first Greek bailout. The Dollar has risen by 13% since this time last year against the Euro. The comparable figures for the Yen and Sterling are 13.2 and 10.7% respectively. On the positive side for the single currency, exports are more attractive because of the slide in the value of the Euro.