USD - Speculation of Fed easing is weighing heavily on the US dollar. Weak U.S jobs data last week raised expectations the Fed will launch another asset purchase program. That would put pressure on the dollar against higher-yielding currencies. Recent polling taken after Friday's payrolls report, highlighted economists view of a 60 percent chance of the Fed embarking on QE3 this week compared with 45 percent chance in a late August poll. The dollar also lost ground after Moody's Investors Service said the United States could lose its triple-A debt rating if next year's budget talks do not result in a lower debt to GDP ratio. Investors are also making a move to the safe-haven currencies, driving the greenback to a three-month trough against the Swiss franc. Markets will await any news from the outcome of a two-day U.S. Federal Reserve meeting that ends on Thursday.
EUR - The euro continued its climb to its best levels against the dollar since the middle of May on increased expectations a German court will back the euro zone bailout fund, while the greenback fell broadly on speculation the Federal Reserve will ease monetary policy further. Gains were seen likely to be capped by the outside risk Germany's constitutional court could still surprise investors by rejecting the European Stability Mechanism, Europe's new bailout fund, in a ruling on Wednesday. Such a decision would threaten European Central Bank plans to lower the borrowing costs of Spain and Italy under a program announced late last week which had given the euro a lift. The single currency has rallied more than 6% from its two-year low of $1.2042 struck in late July. Analysts said sentiment toward the euro was broadly positive but the currency was vulnerable to developments in Spain, which is expected to ask for a bailout, and in Greece, whose foreign lenders rejected parts of a government austerity package.
GBP - Sterling soared to fresh 4-month highs against the USD due to broad dollar weakness on the prospect of more U.S. monetary easing. The pound gained in tandem with the euro on expectations of a favorable German court ruling on a euro zone bailout fund due on Wednesday, while better UK economic data also helped. Recent signs the UK economy may exit recession in the second half of this year have helped to lift the currency.
JPY - The greenback fell to its lowest levels in more than three months against safe-haven the Japanese yen on the news. Analysts said the Japanese authorities were likely to step up threats to intervene in the currency market and the Bank of Japan could ease policy further when it meets next week to offset any impact from possible easing by the Fed.
Commodity Currencies - The highyielding commodity currencies are trading stronger this morning as the USD fell against all of its most-traded counterparts. Markets are awaiting the outcome of the FOMC meeting that starts tomorrow, amid speculation that the Fed will buy bonds to boost the economy. Based upon this and optimism that European policy makers will support global economic growth prospects, the Canadian dollar strengthened for a fourth straight day. Central bank policy has removed tail risk and greatly reduced volatility and the loonie has a strong bias to trade higher. Both the AUD and the NZD are trading up this morning. The kiwi rose by 1% as Fitch affirmed the country's AA rating, citing its strong governance and business environment. The market ignored the disappointing number of Australian home loans, which in July fell by 1%, suggesting that the housing market is moving sideways. Raw good prices are moving up with oil at to $97/bbl and gold at $1,734/troy oz. Also, copper rose to a four-month high on a brightening outlook for commodities demand touching $3.704 a pound, the highest since May 10.