Forex Traders Drive Down The US Dollar

The US dollar is trading in the red giving up 11 points to 97.63 well off its high just weeks ago at 100.80. Speculators and analysts are confounded with the price decline as the Fed are on the verge of raising interest rates in just hours. The Federal Reserve will kick off its last policy meet of the year later today. At the end of the two-day meet, the US central bank is widely expected to hike interest rates for the first time since June 2006. Higher rates are expected to hurt demand for non-interest-paying bullion, while boosting the dollar.

The dollar eased as “nervous” markets focus on a Federal Reserve meeting this week where policymakers are expected to decide on a long-awaited interest rate rise. After months of speculation, the US central bank is widely seen as all but certain to give the green light to a small increase in borrowing costs for the first time in nearly a decade – usually a plus for the dollar. The biggest question is the size of the increase as well as Fed policy moving into 2016. There is disagreement on how fast subsequent increases will be from the Fed, which wraps up its two-day meeting on Wednesday.

The announcement comes as plunging oil prices and worries about tepid global economic growth have sent investors flocking to safe-haven units including the yen. the greenback edged down to 120.95 yen in Asian trade from 120.98 yen Monday in New York, and above 123-yen last week.

The euro rose to $1.1018 and 133.26 yen from $1.0992 and 132.99 yen, despite ongoing expectations the European Central Bank will unveil measures to loosen monetary policy in the new year, effectively printing cash. There has been speculation that Draghi could not achieve ECB board agreement for a more dovish package that he wanted, but another reason could be simply that European economic data has improved. The surprise of the ECB announcement slightly dents but does not scupper the prevailing picture of divergence between US and European interest rates. The markets are keeping a close eye on the key releases scheduled on today – German Economic Sentiment and US CPI.

The euro has posted a remarkable turnaround since the start of December. The euro dropped very close to the 1.05 line, but has since rebounded sharply, gaining close to 400 points in the process. The catalyst to the euro’s surge was the ECB policy meeting on December 3, as Mario Draghi and co. shocked the markets by not introducing any substantial monetary moves despite the Eurozone economy languishing with little growth or inflation. The euro will face a stiff test on Tuesday as Germany and the Eurozone release the well-respected ZEW Economic Sentiment reports. If these readings fail to live up to expectation.

The dollar was flat at 121.09 yen having pulled back from a 6-week low of 120.35 on Monday. A week ago the greenback was trading higher, above 123 yen. Cautious traders have trimmed their dollar positions, awaiting clues on how the Fed might the pace for additional monetary tightening next year.

The pound struggled on signs the British government may not get is way in talks with European partners before next year’s vote on leaving the EU, which added to political anxiety.

China’s yuan hit a fresh 4-1/2-year low to the dollar on Monday, after the central bank said it had begun publishing a yuan exchange rate weighted against a basket of currencies, a move that will eventually loosen the currency’s link to the greenback. The CNY gave up 39 points this morning to trade at 6.4629.