The Fed turned to a proactive approach to aid the fading economy as they offered to lend up to $200B in treasuries to financial institutions in exchange for debt, and led the US dollar to snap back from newly recorded lows. Among the major currencies, the US dollar picked up the most in six months against the yen as it rebounded from an eight year low, with the Swiss franc following closely behind as demands for carry trades picked up after the reassuring announcement from the Fed. Against its European counterparts, the euro weakened to 1.5330 after touching an all time high of 1.5496, with the British Pound also falling against the US dollar as the pair retraced back to 2.0060. As investors took on more risk, the comm dollars picked up moderate gains against the US dollar while upward pressures from rising commodity prices helped as well, as oil surged to a record high of $108.44 a barrel.

Fresh economic data raised inflationary concerns for the US economy as the trade deficit widened to $58.2B from $57.9B due to record high oil costs. However, after taking a closer look at the data, the trade figures came out better than many had expected as rising exports eased the mounting pressures from inflation. Following the trade release, the IBD/TIPP Economic Optimism data added downward pressures for the US dollar as consumer confidence dropped to a two year low stoked by overwhelming recessionary concerns for the economy.

The stock markets advanced for the first time in four sessions as the Fed swooped in to restore liquidity in the financial markets. As a result, the DJIA rose the most in seven weeks to pick up a bolstering 416.66 points to bring the index up to 12,156.81, with aircraft giant Boeing posting the only losses of the big 30. Among the broader indices, the S&P500 advanced 47.28 points and brought the index to 1,320.65 points, with Thornburg Mortgage surprising topping the advancers, while Wellpoint Inc lead the losers.

Investors fled the save haven of US Treasuries as risk aversion got tucked into their back pockets, and sent bond prices falling. The benchmark 10-Year yield rose to 3.60 from 3.45 percent, while the 2-Year yield jumped 1.75 from 1.48.

Looking ahead, Retail Sales and Import Prices will be the main focus for Thursday and expect increased volatility for the US dollar, and will be followed by Initial Jobless Claims and Continuing Claims at 12:30 GMT.

Antonio Sousa is a Currency Analyst for FXCM.