Dollar down on Fed stimulus view

The dollar dropped across the board today on expectations that the Federal Reserve could ease monetary policy further following a series of downbeat economic data.

Analysts predict that the Fed is set to extend its Operation Twist long-term bond-buying by several months from the current June deadline. The Fed’s rate-setting committee begins its two-day meeting today.

The euro climbed because of these expectations, in spite of a weak economic sentiment survey from Germany. However, its gains appeared vulnerable to the continuing stream of negative news from the eurozone. Cautious investors are waiting the result of coalition negotiations from Greece that could lead to the nation’s bailout terms being renegotiated.

The single currency was last up by 0.5 per cent at $1.2640 after reaching session highs of $1.2647. Current support is seen at around $1.2536, the treadline below 1 June daily lows, and $1.2530, the 21-day moving average.

However, strategists said that the common currency would struggle to rise higher than Monday’s one-month high of $1.2748 following a victory for Greece’s pro-bailout parties, due to the poor economic outlook and concerns about the banking system in Spain.%
News that a second audit of Spanish banks is due to be postponed until September triggered more bearishness towards the region’s fourth-largest economy, which has seen its 10-year borrowing costs soar above the seven per cent mark.