The dollar dropped to almost four-month low against the euro as the Federal Open Market Committee prepares to meet today. Speculation is ripe that Fed will move to buy bonds as a measure to boost job growth. The greenback remained low against its peers as speculation of a worsening economy mounted after Moody’s Investor Service indicated that the AAA rating for the US may be reviewed downwards if the ratio of debt-GDP is not reduced. The 17-nation currency strengthened against the yen as the Constitutional Court in Germany is expected to rule in favor of the establishment of the European Stability Mechanism fund.
According to Richford Capital Director, Derek Mumford, the market expects the Fed to announce another round of quantitative easing which will be negative for the dollar. Speculation is rising and the dollar is softening as a result. The MSCI Asia Pacific Index of shares also advanced by one percent as risk appetite rose. In efforts to boost economic recovery, the Federal Reserve has injected $2.3 trillion into the economy by buying securities in two rounds. Bernanke has expressed willingness to make another round of purchases as unemployment remains a painful thorn in the US economy.
Pressure mounted on the FOMC to pass a policy to curb the waning economy as Moody’s indicated that it would reduce the country’s rating to AA1 if no policy is passed. The greenback fell by 0.9 percent against the euro to $1.2871, the lowest it has been since May 14, and it is now trading at $1.2856 in Tokyo. The 17-nation currency has increased against the yen by 0.2 percent to trade at 100.18 yen. The currency closed last week at 100.43 yen, which is the strongest it has been since July 4. The dollar advanced against the yen by 0.2 percent to trade at 77.92 yen.