February 12, 2009 / 9:04 PM / 10 years ago

Fed did not intervene in FX market in Q4-NY Fed

NEW YORK, Feb 12 (Reuters) - The global financial crisis led to heightened currency volatility, but U.S. monetary authorities did not intervene in foreign exchange markets in the fourth quarter, the Federal Reserve Bank of New York said on Thursday.

The dollar’s trade-weighted exchange value rose 4.3 percent during the final three months of 2008, as measured by the Federal Reserve Board’s major currencies index, according to the latest quarterly report from the New York Fed.

During the period, the dollar fell 14.6 percent against the yen but gained 0.9 percent against the euro.

“Exchange rates were exceptionally volatile during the quarter, influenced by heightened uncertainty and poor liquidity conditions,” the report said.

The dollar and the yen soared in October as the sharp deterioration in the global economy prompted U.S. and Japanese investors to scale back their foreign investments and repatriate capital.

In contrast, the currencies of economies thought to be sensitive to global growth, including many emerging markets, were hit hard throughout the fourth quarter, the report said.

The New York Fed also said “trading conditions deteriorated to historic levels during October, as evidenced by the rapid rise in implied volatility across all currency pairs.”

In response to strong demand for dollar funding during the quarter, the Federal Reserve Market Committee increased existing temporary reciprocal currency arrangements to unlimited amounts with the European Central Bank, the Bank of England, the Swiss National Bank and the Bank of Japan.

The report said that, as of Dec. 31, the ECB had drawn down $291.4 billion, the BoJ had drawn down $122.7 billion, the BoE had drawn down $33.1 billion and the SNB had drawn down $25.2 billion.

The Federal Reserve’s System Open Market Account holdings totaled $604.6 billion at the end of the quarter. The current value of the U.S. Treasury’s Exchange Stabilization Fund totaled $24.8 billion and was comprised of euro and yen holdings, according to the New York Fed. (Editing by Jonathan Oatis)

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