The Dollar weakens as investors see the Fed maintaining stimulus

The greenback fell against the euro on speculation the Federal Reserve will keep its stimulus measures in place and ensure the interest rate remains low. The dollar slid against its major counterparts after Fed Bank of St. Louis President James Bullard said he supported extending the central bank’s purchases of mortgage backed securities beyond the first quarter of next year. The Dollar Index, which tracks the dollar against the currencies of six major trading U.S. partners, declined 0.5 percent to 75.259. The euro strengthened versus the yen on speculation the European Central Bank will decide as soon as next month to stop some of its emergency stimulus measures. “Thoughts of the ECB heading down the quantitative easing exit may be viewed positively for the euro, although the implications may be mixed if it tends to work against risk appetite,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. The EUR/USD is currently trading at $1.4970 as of 7:22am, GMT with a bullish trend.

The British Pound fell sharply on Friday, falling more than 1% against the dollar, on concerns over the UK's fiscal health and waning investor appetite for perceived risky currencies. Sterling also fell against the euro and a basket of currencies as it slid further in the wake of data on Thursday showing UK public finances deteriorated almost twice as fast as expected last month. The UK government faces mounting pressure to spell out how it will curb public borrowing as it prepares to fight an election due by June 2010, amid worries that record debt levels will threaten Britain's triple-A sovereign debt rating. "The pressure on sterling will not abate. The Bank of England is in no rush to change its very loose monetary policy and sterling should stay weak against the euro," Bank of New York Mellon currency strategist Neil Mellor said. The GBP/USD is currently trading at $1.6590 as of 8:07am, GMT with a bearish trend.

Consumer spending probably rebounded in October, showing that mounting Unemployment is restraining, not derailing, the biggest part of the U.S. economy, analysts said before reports this week. “A business recovery has taken root, notably in output and sales, although not yet in employment,” said Neal Soss, chief economist at Credit Suisse in New York. “The recovery will likely be mediocre relative to previous recoveries following severe recessions.” The labor market and reduced bank lending are some of the “headwinds” facing the economy, Federal Reserve Chairman Ben Bernanke said last week. To help ensure the economy doesn’t falter, Bernanke and his fellow U.S. central bankers will probably keep monetary policy unchanged well into 2010.

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