The decision of the US Federal Reserve to cling to a near-zero interest rate pushed the dollar close to a three-year low against other major currencies.

Ben Bernanke, chairman, said in a press conference that the Fed would maintain stimulus by reinvesting maturing securities after the ‘quantitative easing’ programme ends in June.

The dollar index, which measures the US unit’s performance against a basket of other currencies, fell to 73.27, its worst level since August 2008.

The Fed’s ultra-low rate policy has kept up interest in the carry trade, where low-yielding currencies such as the dollar fund purchases of higher-yielding assets. This lifted the Australian dollar to a 29-year high – up 0.8 per cent to $1.0870.

The dollar fell 1 per cent to $1.4785 versus the euro, its lowest since December 2009. The dollar hit a record low against the Swiss franc of SFr0.8671.

Mr Bernanke argued that the falling dollar was not an intended goal of his monetary policy, and that the Fed supported a strong currency. But observers were unconvinced of Mr Bernanke’s hawkish bona fides.

“[He] refused to acknowledge that extraordinarily loose monetary policy has played a role in the dollar’s long-term slide…. Hope springs eternal,” said Joshua Shapiro, chief US economist at MFR.

The dollar held up against the yen, which fell 0.6 per cent to Y82.06. Standard & Poor’s lowered its long term outlook on Japan’s sovereign debt to negative from stable.

Sterling rallied after data showed that the UK economy bounced back in the first quarter. The economy grew at an annual rate of 0.5 per cent in the first three months of the year after contracting by the same percentage in the final quarter of 2010.

The pound rallied 0.3 per cent versus the dollar, to stand at $1.6631, its best level since December 2009.

Analysts were not impressed, however. “The positive market reaction suggests markets were braced for an even weaker figure,” said Vicky Redwood at Capital Economics.

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