Daily Forex Outlook: Dollar (USD) under Pressure with Fed Concluding Meeting

on Dec 12, 2012

The US dollar remained under pressure on December 12, with markets expecting the US Federal Reserve to announce additional stimulus later during the day. Reuters reports that the greenback hovered near multi-month lows versus higher-yielding currencies such as the Australian and the Canadian dollar, but was up against the yen (JPY), which was dragged down by the news on North Korea’s rocket launch.

**Greenback Sliding ahead of Fed Decision**
Bloomberg reported on December 12 that the US dollar was little changed against the single currency at $1.3006 per euro (EUR) as of 6:55 a.m. GMT, after posting a decline of 0.6 percent over the previous two days. As noted by Reuters, the dollar index was also barely changed from late US levels at 80.10, but is down 0.5 percent this week. The dollar has been suffering from expectations that the Fed will introduce another stimulus scheme to replace its “Operation Twist”.

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“The Fed tends to take preventative steps on the economy, considering the way the Fed started QE3. Given concerns about the fiscal cliff, I think the Fed will do what’s been discussed in markets,” noted Hideki Amikura, forex manager at Nomura Trust Bank, as quoted by Reuters. “In that case, the euro/dollar should rise further.” The single currency was also supported by unexpected strength in German economic confidence.

The dollar, however, gained 0.2 percent versus the yen to ¥82.65, as reported by Reuters. The yen, which has been suffering from its own easing speculation, reacted to the news that North Korea had launched a rocket, although analysts estimated the news’ impact on Japan’s currency will be limited. “Yen selling was limited after the headlines on North Korea’s rocket launch,” noted Junichi Ishikawa, an analyst at IG Markets Securities Ltd, as quoted by Bloomberg. “Though you would think geopolitical risk, on top of recent political developments in Japan, would be negative for the yen.”

**Higher Yielding Currencies Appetite**
!m[US Easing Prospects Boosting Aussie (AUD), Loonie (CAD)](/uploads/story/1019/thumbs/pic1_inline.png)US easing prospects pushed the greenback down versus higher-yielding currencies, Reuters reported on December 12. The Australian dollar hit a three-month high of $1.0541 against the greenback and an eight and a half month high versus the yen of ¥87.01. “The Aussie remains one of a few currencies with yields therefore investors have no choice but to buy,” noted a trader at a European bank, as quoted by Reuters.

The Canadian dollar also stood higher against its US counterpart, trading near a seven-week high of C$0.9858 per US dollar hit on Tuesday whereas the New Zealand dollar hovered near a nine-month peak of $0.8398.
**Swiss Franc Speculation**
The Swiss franc (CHF) has also been under pressure, with the Financial Times reporting that the euro rose 0.4 versus Switzerland’s currency to 1.2124 francs. The franc was dragged down by the decision of UBS AG (NYSE:UBS) to introduce a fee on certain deposits held in francs, following a similar move by another major Swiss bank, Credit Suisse (NYSE:CS).
“All these measures could dissuade investors and savers alike from depositing money in the Swiss franc and, by implication, make it easier for the SNB to announce and maintain a higher EUR/CHF floor,” pointed out Valentin Marinov, foreign currency strategist at Citigroup (NYSE:C), as quoted by the FT, adding, however, that the SNB was likely to wait to have more clarity on the evolving situation in the Eurozone before taking steps to “cheapen the franc”.


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