Dollar down as more Fed stimulus expected

Expectations that the US Federal Reserve will introduce further economic stimulus measures have seen the dollar drop against the euro. The single currency has also been strengthened by positive economic sentiment coming out of Germany.

The fourth-quarter has seen the euro strengthen by 1.2 per cent and more bond buying by the US central bank could see it climb higher. Investors and analysts in Germany have been encouraged to take more risks after a ZEW think tank poll indicated the country is likely to avoid tipping into recession this winter.

Pressure has been placed on the greenback although stocks have rallied as it becomes more likely Congress and the White House will come to an agreement that will avoid the fiscal cliff. An agreement is needed before the end of the year on tax hikes and spending cuts if the country is to avoid recession.

The euro is currently trading at $1.3004, a rise of 0.5 per cent. Investors are unlikely to start buying the dollar again until the results of the latest Fed meeting are known. Many economists are betting in a decision to buy $45 billion per month, although some feel the amount could be higher.

The greenback has strengthened slightly against the yen and is currently up 0.1 per cent to 82.42 yen. Many expect elections in Japan to result in pressure being placed on the Bank of Japan to increase stimulus.