Fed Bets Fuel US dollar Sell-Off
The US dollar fell for a fifth consecutive day, as market participants shift their attention to next week’s Federal Open Market Committee policy meetings. Expectations the Federal Reserve won’t pare back asset purchases in December continue to weigh on the dollar amid the relative dearth of economic data.
The dollar declined more than 0.1 percent against a basket of its peers, as Congress sets to unveil the first bipartisan budget agreement in nearly 30 years. The two-year agreement removes the threat of a second partial government shutdown in January. The deal also eases automatic spending cuts by $63 billion over the next two years, and reduces the deficit by $23 billion.
The greenback weakened further against the euro, as Fed uncertainty continued to support the common currency. The euro advanced 29 pips to 1.3788 USD after hitting 1.38 for the first time since October 25.
Fed speculation sent the US dollar to an eight-day low against its northern rival, the Canadian dollar. The USDCAD fell below 1.06 for the first time since December 2.
In Asia, the greenback lost 28 pips to 102.56 yen. The USDJPY surpassed 1.03 earlier this week for the first time since May 23.
A bout of risk aversion in the markets had a negative impact on the British pound, which retraced its recent advances to fall below 1.64. The GBPUSD pair hit a session low of 1.6344 before consolidating at 1.6386, a loss of 60 pips.
Down-under, the Australian dollar fell 83 pips to 0.9067 USD after consumer confidence declined sharply during the holiday season. The Westpac Consumer Sentiment Index fell 4.8 percent to 105.0 in December, the lowest level in six months. A weak economic outlook over the next 12 months and five years was the biggest factor behind the decline.
The FOMC is scheduled to meet on December 17-8 to discuss monetary policy. The December meetings are the second-to-last chaired by Ben Bernanke, who will be replaced by Janet Yellen in February. Strong job creation in October and November may prompt the Fed to consider a bond taper, but probably won’t be enough to warrant any stimulus cuts at this time, according to economists.
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