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Dollar Gains Against the Euro as Investors Await the Fed’s Minutes

The United States Federal Reserve is set to be released on Wednesday. Hours before its release, the dollar gained against the euro and sent the euro back to two-year lows. For most of the session, the United States dollar has been weak in trading. With weak economic data leaving the United States, investors have been speculating that the Fed might issue another round of quantitative easing. The dollar dropped early on in the session before making gains. 

An Unlikely Future for the Euro

The euro has been hovering around record lows as investors await a ruling by Germany’s Constitutional Court. After the European summit created an outline for the fiscal crisis, Germany submitted the new proposals to the Constitutional Court. It is now up to the court to decide if the European Stability Mechanism is in accordance with German law.

Unfortunately for investors, it appears as if it will take several weeks for a ruling to be reached. Analysts hope that a decision can be reached before autumn. If the court deliberates too long before making a ruling, it could harm investor confidence in the euro. After a glance at the euro’s current trading prospects, it appears like investor sentiment toward the euro has already taken a downward turn. To add to the Eurozone’s woes, the Italian prime minister announced on Tuesday that Italy would like to receive some of the Eurozone’s rescue funds.

Euro Falls Against the Yen

With all of the dismal news coming out of Europe, the euro dropped to a five-week low against the Japanese yen. By the middle of Wednesday’s session, the euro gained 0.3 percent to reach a level of 97.55 yen.

The euro also slipped against the majority of other top currencies as investors grew increasingly worried over the possible outcome of Germany’s court decision. The euro is currently at a 3.5 year low against the United Kingdom pound, a two-year low against the dollar and a record low against Australia’s dollar. The euro dropped 0.1 percent against the greenback to reach $1.2236. This is close to the two-week low of $1.2225. If the condition worsens, the euro may fall to the rate of $1.1875 that it reached in June of 2010.

Last week, the European Central Bank decided to drop the main interest rate to a record low of 0.75 percent. Deposit rates are now set to zero. With the low interest rate, the euro will have a difficult time appreciating against any currency. Investors have been using the currency for import and export purchases, but have avoided placing investments within the embattled European Union.

Bank of Japan Holding off on Fiscal Easing

In the last week, central banks in the United Kingdom, China and the Eurozone have all started moving toward fiscal easing policies. Analysts believe that the Bank of Japan will not be enacting any fiscal easing policies for now. The Bank of Japan will be starting a policy meeting on Wednesday that will span two days.

During Wednesday’s trading session, the dollar gained 0.4 percent to hover at 79.70 yen. The 200-day moving average for the United States dollar is currently at 78.98 which places its current rate much higher than average.

Awaiting the Federal Reserve Bank Decision

The Federal Reserve Bank is expected to release their minutes at 1800 GMT. Investors are eagerly awaiting the release of the minutes. With policy makers divided over potential fiscal easing, the outcome of the Federal Reserve Bank decision is uncertain. If there is quantitative easing in the United States, it could prop up the euro for a while. The euro will still have to deal with slowed growth and difficulties arising from their debt crisis.

The Australian dollar rose against the greenback 0.5 percent. It was last at $1.0241 due to the higher yields offered by Australian government bonds.

Sudanese Pound Drops

As a former oil producing nation, Sudan enjoyed a strong currency and economy. After South Sudan seceded and took the oil fields with them, the Sudanese pound has suffered. In the last year, the pound has lost half of its value. Although the government has enacted austerity measures to increase consumer confidence, the measures have not been enough. To make matters worse, the official exchange rate set by the central bank has been undercut by black market trading. In the last few months, the central bank has tried to adjust their official exchange rate. Even with the changes to the exchange rate, the pound is still trading at 5.3 pounds per United States dollar by the bureau of exchange and 6 pound per dollar on the black market. With $40 billion in debt, it will be difficult for Sudan to get the help it needs for the pound to recover. 

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