The U.S. dollar declined sharply for the second straight session on Thursday after Fed announced to purchase long-dated Treasuries over the next six months and stepped up to buy mortgage bonds, expanding the central bank’s balance sheet by as much as $1.5 trillion. Investors feared the plan would end up debasing the reserve currency and sold greenback broadly.

The single currency rallied above 1.3700 level and touched a session high of 1.3739 against the greenback while cable also surged to as high at 1.4598 before easing. In late New York trading, the euro and sterling rose by 1.2 percent and 1.3 percent and traded at 1.3666 and 1.4505 respectively versus the dollar.

On the other hand, the greenback declined to as low as 93.55 versus Japanese yen and 1.1158 against the Swiss franc before profit-taking emerged on risk aversion due to the falling in U.S. stock markets. U.S. dollar traded lower by 1.4 percent at 94.53 yen and 1.6 percent at 1.1235 franc in late New York session.

The dollar index, which measures the greenback against a basket of six major currencies, slipped by 1.3 percent after a 3 percent plunge on Wednesday, its biggest one-day drop in about of a quarter of a century, last traded at 88.123.

The U.S. stock markets fell on Thursday on concerns that the Fed’s efforts to stem recession are too costly and untested, prompting investors to book profits on bank shares after a recent run-up. The Dow Jones industrial average fell 85.78 points and ended at 7, 400 while Standard & Poor’s 500 index and Nasdaq Composite Index dropped by 1.3 percent to 784 and 0.52 percent to 1,483 respectively.

On Friday, the Japanese markets will be closed and economic data release from other nations includes German producer prices data, eurozone current account and industrial production, Canada retail sales data. ECB Governing Council member Axel Weber will give a speech regarding the financial crisis at a conference of the Hertie School of Governance at 13:00GMT.