Daily Forex Round-Up: Greenback (USD) Extending Losses on Fed Decision Expectations

on Dec 12, 2012

The US dollar declined on December 12, with expectations that the US Federal Reserve will introduce additional quantitative easing to replace its Operation Twist weighing on the greenback for most of the trading day. Although the dollar lost ground against the euro (EUR) as well as versus higher-yielding currencies such as the Aussie (AUD), it advanced to an eight month high against the yen on account of Japan’s own monetary stimulus prospects.

**Dollar Losing Ground before Fed Decision**
On December 12, Bloomberg reported that the US dollar lost 0.3 percent against the euro, to trade at $1.3040 per euro at 8:38 a.m., touching the weakest point since December 6. While the dollar was dragged down by Fed easing expectations, the single currency received a boost after Bank of Greece governor George Provopoulos qualified the nation’s bond buyback as a success.

“All eyes are on the Fed and that has clearly been the driver for this week, at least with the dollar down across the board,” noted Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, as quoted by Reuters. “We’re seeing high yielders like the Aussie and kiwi (NZD) benefit on expectations of further central bank easing.” The Aussie, as the Australian dollar is known, climbed 0.2 percent to $1.0550 after rising to the strongest level in more than two months. Its New Zealand counterpart, the kiwi, touched its highest level against the greenback since February 29.

**Yen Struggling, Seen as Weakening Further**
The dollar, however, performed well against the yen, rising to an eight month high and was last trading 0.4 percent higher at ¥82.89, as reported by Reuters. The euro advanced 0.7 percent to ¥108.05. Japan’s currency weakened mostly on expectations that the Liberal Democratic Party (LDP) and its ally will win the forthcoming election on December 16.

“For the yen that means they will be able to implement stimulus measures and operate more aggressive control of the Bank of Japan, which will all point to further weakening of the yen,” noted Neil Jones, head of hedge fund FX sales at Mizuho Corporate Bank, as quoted by Reuters.
**Won (KRW) up despite North Korea’s Rocket Launch**
!m[Yen (JPY) Continues Own Easing Speculation Struggle ](/uploads/story/1024/thumbs/pic1_inline.png)And while some analysts note that North Korea’s successful rocket launch may have also contributed to the yen’s weakening, it seems to have had little or no impact on South Korea’s won, which traded near a 15-month high on December 12.

Bloomberg reports that the won closed 0.2 percent stronger at 1,074.93 per dollar in Seoul, after touching 1,073.64, the strongest level since September 2011. “North Korea had warned it would launch a rocket and so the firing was expected by investors, which explains the relatively muted reaction in financial markets,” commented Yun Se Min, currency dealer at Busan Bank, as quoted by Bloomberg.
**Swiss Franc (CHF) Edges Up**
The franc, which on December 11 lost 0.4 against the euro, rebounded from a three-month low versus the single currency. Bloomberg reports that the franc traded at 1.2119 per euro and 93.02 centimes per dollar as of 6:17 a.m. EST on December 12.
Switzerland’s currency weakened after UBS AG (NYSE:UBS) and Credit Suisse (NYSE:CS) said they would set negative interest rates for franc-denominated cash balances, spurring speculation that the Swiss National Bank might introduce additional measures to weaken the franc.


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