Dollar drops ahead of Fed announcement

TradingPub Admin | December 12, 2012

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The U.S. dollar declined against several of its peers in early trade on Wednesday, December 12, as market participants looked to the Federal Reserve announcement expected later in the day. Currency fluctuations could be helpful to those interested in learning about forex trading.

Market experts widely attributed the falling dollar to the falling risk aversion of investors, as these market participants fled to currencies perceived as being riskier in an effort to get higher returns.

Falling Dollar

MarketWatch reports that the ICE Dollar Index, which compares the price movements of the greenback to six major trading rivals, dropped to 79.888 from the figure of 80.061 it had in North American trade the day before.

The U.S. dollar fell to its lowest value in several months against the New Zealand and Australian dollars, which are considered to be riskier currencies, according to Reuters. Speculation that the Federal Reserve would engage in further stimulus reduced the allure of assets denominated in the greenback.

Bloomberg News reports that the U.S. dollar was valued at $1.3040 per euro at 10:11 a.m. in New York, falling to its lowest level versus the common currency since December 6. The euro is generally thought of as being riskier than the dollar, as the euro zone has faced repeated fiscal challenges. The Japanese yen was trading down 0.4 percent versus the dollar at 82.86 per, which was its lowest since April 4.

The U.S. dollar fell to its lowest value in 15 months against the South Korean won, in spite of news that North Korea launched a rocket recently, according to the media outlet. The Asian currency increased to 1,073.64, which was its highest level versus the greenback since September 8, 2011, before declining after the launch of the rocket. The won moved 0.2 percent higher to close at 1,074.93 against the greenback in Seoul.

In addition, the U.S. dollar dropped to its lowest value in more than two months against its Australian counterpart, the aussie, the news source reports. Australia's currency appreciated to its highest value against the greenback before paring these gains to trade up 0.2 percent at $1.0546.

"There is a slightly more benign view of risk today," Michael Derks, chief strategist at FxPro Group Ltd. in London, told the media outlet. "There's likely to be more quantitative easing from the American central bank today."

Fed Stimulus 

Reuters reported that before the decision was made, the chances that the nation's central bank would continue its purchases of mortgage-backed debt and find additional stimulus to replace a program that was phasing out were high.

"I think the market has already discounted that the Fed is going to announce more stimulus, so what's more important is what Chairman Bernanke says, which may give us clues on economic activity going forward," Peter Cardillo, chief market economist at Rockwell Global Capital in New York, told the news source. "We might see a bit of selloff after Bernanke's comments, but we've been up for five straight days, so that shouldn't be surprising."

Of the 49 economists who contributed to a Bloomberg poll, all but one predicted that the Federal Reserve will announce further quantitative easing (QE) measures when its two-day meeting concludes.

"Easing is negative for the dollar and at the margin the Fed will be easing more relative to the euro, the pound, the yen," Charles St-Arnaud, a foreign-exchange strategist at Nomura Holdings Inc. in New York, told the news source. "The market has QE fatigue so this will be only short-term."

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