The dollar weakened slightly against the euro ahead of a U.S. Federal Reserve rate meeting later Wednesday, but gained ground against the yen on a possible further easing in BOJ monetary policy. Overall, risk sentiment continued with Asian stock markets following gains in U.S. equities overnight. Market watchers expect the FOMC to announce another round of additional asset purchases as some of the Fed’s current asset buying program is set to conclude Tuesday. Apart from Fed easing hopes, the euro was underpinned by a big jump in German sentiment with the ZEW index hitting a 7 month high of +6.9 for December from -15.7 in November. Against the yen, the dollar rose to a high of Y82.64 on expectations of more easing by the Bank of Japan, which would offset any similar moves by the U.S. Fed. News of a missile launch by North Korea that overflew Japanese territory didn’t grab much attention in the market, though the euro and the Australian dollar fell back slightly. The Australian dollar managed to hold on to overnight gains, rising to $1.0531 from $1.0525 early Sydney despite headwind from consumer sentiment data which unexpectedly pulled back to 100.0 in December from 104.3 in November. The outcome was disappointing given the index captured the effect of the Reserve Bank of Australia’s latest cut of 25 basis points and hinted at chances of more easing from the RBA in the current cycle started in November 2011 that has seen total rate cuts of 175 basis points. The New Zealand dollar extended gains, trading at new nine-month highs after breaking through the key resistance level of $0.8360 overnight. A convincing break of $0.8360 means the 2012 highs of $0.8475 now looms as the next target.
EasyForexNews Research Team