Dollar dips as investors expect new Fed stimulus

December 10, 2012

NEW YORK – The dollar dipped against other major currencies Monday as investors bet the Federal Reserve would provide more stimulus to the lackluster U.S. economy at its rate-setting meeting this week.

The euro was buying $1.2939 at 2200 GMT, up from $1.2928 at the same time Friday.

Against the Japanese currency, the European currency weakened to 106.53 yen from 106.64 yen late Friday, while the dollar edged down to 82.33 yen from 82.46 yen.

“We believe the weakness in the greenback reflects the market’s expectations for easier monetary policy from the Fed,” said Kathy Lien of BK Asset Management.

The U.S. central bank’s policy-setting Federal Open Market Committee opens a two-day meeting Tuesday. Stubborn high unemployment and the looming fiscal cliff challenge give the Fed every reason to expand its stimulus efforts, analysts said.

Gathering just before its “Twist” asset-swap operation expires at year-end, there are signs the FOMC will replace it with more outright bond purchases, or “quantitative easing,” aimed at lowering interest rates to encourage businesses to invest and hire.

“Given the increasing uncertainty about America’s looming fiscal crisis, the Fed is likely to signal that it will continue its outright purchases of mortgage and agency bonds worth $85 billion and maintain lending rates near zero until mid-2015,” said Omer Esiner of Commonwealth Foreign Exchange.

“If the Fed signals that further easing next year is likely, the dollar could suffer.”

Against the Swiss currency, the dollar fell to 0.9335 francs from 0.9343 francs late Friday.

The British pound fetched $1.6075, up from $1.6039.

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