Dollar Falls Before Fed Considers More Pumping…Gold Rebounds

The US dollar is starting to fall against world currencies as investors anticipate more stimulus by the Federal Reserve.

The dollar weakened against most of its major counterparts today amid bets the U.S. central bank will add to monetary stimulus. The U.S. currency fell versus the euro and the yen before the Federal Reserve starts a policy meeting tomorrow amid forecasts it will expand bond-buying plans.

“People are looking ahead to the Federal Reserve this week, which should be an event that is positive for risk and negative for the dollar,”  Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, told Bloomberg News this afternoon.

The U.S. currency declined versus 10 of its 16 most-traded counterparts.

The U.S. Federal Open Market Committee meets for the last time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.

“There’s a good chance that the Fed will announce a new round of money printing and bond buying,” which would be negative for the dollar, said Imre Speizer, a strategist in New Zealand atWestpac Banking Corp. (WBC).

Not surprisingly, the weakness in the dollar pushed gold higher. Spot gold was last quoted up $8.00 per ounce to $1,713.00.

Gold tends to move higher on a weaker dollar for two reasons:

1. Gold is priced in dollars, so a weaker dollar naturally pushes up the price of gold in dollars.

2. Gold is considered a main rival to the dollar as the world’s reserve currency, therefore, when confidence in the dollar wanes, demand for gold tends to rise.

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