Forexpros – The dollar firmed in Asian trading Wednesday after the Federal Reserve dismissed the possibility of fresh monetary easing, which would have weakened the dollar with the aim of injecting liquidity into the financial system to pump up the economy.
Meanwhile, reports out of Germany that Chancellor Angela Merkel’s government opposes strengthening a bailout fund fueled the flight to the safe and liquid greenback as well.
In 2012, a EUR500 billion European Stability Mechanism will become operational yet fears have persisted that while it may be big enough to assist countries like Greece, it won’t be large enough to prop up Greece alongside bigger eurozone nations such as Italy and Spain.
Talk that Germany, one of the fund’s key contributors, opposes beefing it up fueled fresh fears that the euro may be in trouble.
Furthermore, the Federal Reserve didn’t rule out the possibility of snapping up assets such as Treasury bills or mortgage-backed securities from banks, known as quantitative easing, in its quarterly monetary policy statement on Tuesday.
Markets, however, interpreted the language to mean that such a move wouldn’t come until well into 2012 if it does comes at all.
Used to steer the economy away from crippling deflation while priming stock-market gains with the aim of bolstering unemployment rates, quantitative easing weakens the dollar, and talk of such policies staying on hold brought out the dollar bulls.
During Wednesday trading, the greenback was up against the euro, with EUR/USD down 0.08% and trading at 1.3027.
The greenback also firmed against the pound, with Cable dropping 0.03% to hit 1.5474.
Cable was likely to find support at 1.5470, today’s low and resistance at 1.5574, Tuesday’s high.
Meanwhile, the greenback was up 0.01% against the yen, with USD/JPY was trading at 78.00, and up against the Swiss franc, with USD/CHF trading up 0.03% at 0.9458.
The greenback was stronger currencies in Canada, Australia and New Zealand, with USD/CAD up 0.07% at 1.0346, AUD/USD sliding 0.14% to 1.0002 and NZD/USD slipping 0.11% to hit 0.7560.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, cooled a bit early in Wednesday’s session, dropping 0.01% at 80.96.
In wake of bombshell reports out of Germany and the Federal Reserve’s hands-off language, markets are looking forward to U.K. unemployment rates for guidance later on Wednesday.
Eurozone industrial production figures are due out as well and will shed light on output produced from the continent’s manufacturers, mines and utilities.
Canada will unveil its latest leading indicators index and manufacturing sales data, while back in the U.S. the import price index as well as crude and gasoline inventory data will serve as the greenback’s weather vane as well.
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