While the dollar has weakened, one veteran market analyst says the magnitude of the Fed's moves were probably not fully priced into the market.
"I don't think the bearishness will manifest itself over the next week, but I think it will build because the market will digest the implications of the Fed's balance sheet expanding by almost 40 percent on a year-on-year basis," Steven Englander, global head of G10 currency strategy at Citi.
The Fed hopes the cash, which represents new money being printed versus the expiring "Operation Twist" program that bought long-term treasuries with the proceeds from the sale and redemption of short-term debt, will spur extra spending and investment and result in longer-term hiring.
"Considering the meager success of the past four years in fostering economic growth with asset purchases, the Fed finds itself in a policy box with no exit, unable to improve the economy but afraid to temper its stimulative policies for fear that the economy will collapse," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff Lake, N.J.
"This will have very little impact on the dollar as it is a continuation of current policies and has already been priced in," said Trevisani.
In the aftermath of the Fed's announcement, which caused a sharp decline in U.S. Treasuries prices and a surge in U.S. stock prices, the euro climbed to a fresh intra-day high of $1.3096, before slipping back to $1.3064, a gain of 0.46 percent.
Inflation concerns remain low, the Fed said. The central bank is focusing on a 2 percent inflation rate alongside conditions consistent with maximum employment. Only then will it consider a "balanced approach" to tightening monetary policy, and any removal would be relatively gradual, Federal Reserve Chairman Ben Bernanke Said at a press conference.
He reiterated the Fed has no tools available to offset a tightening of fiscal policies under the so-called "fiscal cliff," whereby failure to strike a deal would result in a $600 billion mix of spending reductions and expiring tax cuts due to take hold at the start of 2013.
Japan Stimulus Prospects
As the dollar fell against the euro and slumped against higher-yielding currencies such as the Australian and Canadian dollars, it maintained its advance against the Japanese yen.
The greenback hit a near nine-month high after the Fed's decision. Investors are betting the Bank of Japan will implement more aggressive monetary easing of its own after an election on Sunday that is expected to yield a victory for the Liberal Democratic Party.
LDP leader Shinzo Abe has called for more aggressive monetary easing in Japan to revive the stagnant economy.
The dollar last traded at 83.14 yen, up 0.76 percent and just off the session high of 83.22, according to Reuters data. The euro, already advancing against the yen, surged to a 1.25 percent gain to trade around 108.62 yen, its best level since April 4.
"It's additional (Quantitative Easing), which should be risk-positive at the margin. Yields are backing up a bit, which should be supportive for dollar-yen," said Brad Bechtel at Faros Trading in Stamford, Conn.
"It underpins the equity market and, to me, is a nice framework for a risk rally that I would expect to carry over into the first quarter. The fiscal cliff is obviously a concern, but if we get through that, it should be risk-positive," he said.
Another potential factor weighing on the yen was the successful launch by North Korea of a rocket Wednesday, analysts said.
The Australian dollar rose to a three-month high against the greenback. The New Zealand dollar climbed to its best levels since Feb. 29, while the U.S. dollar slipped to an eight-week low against its Canadian counterpart.
"The scope for further dollar losses may be somewhat limited, especially with so much uncertainty in the markets about the U.S. fiscal cliff. Uncertainty about the euro zone, concerns about Italy and the Japan election this weekend should also limit dollar losses," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, D.C.