* Many expect Fed to announce bond buying of $45 bln a month
* Euro helped by surprise strength in German sentiment
* Aussie dollar hits three-month highs vs USD
* Yen under pressure on BOJ expectations ahead of election
By Hideyuki Sano
TOKYO, Dec 12 The dollar was under pressure on
Wednesday, hovering near multi-month lows against
higher-yielding currencies, as markets bet the U.S. Federal
Reserve would announce more stimulus later in the day.
The euro was also buoyed following surprise strength in
German economic sentiment, which contrasted with recent signs
that concerns over the fiscal cliff are hurting U.S. economic
There was limited reaction in major currencies after North
Korea launched a rocket, which critics say is a disguised
ballistic missile test, as the news had little immediate
implications for the global economy.
"The Fed tends to take preventative steps on the economy,
considering the way the Fed started QE3. Given concerns about
the fiscal cliff, I think the Fed will do what's been discussed
in markets," said Hideki Amikura, forex manager at Nomura Trust
"In that case, the euro/dollar should rise further," he
The dollar index stood at 80.04, flat from late U.S.
levels but down 0.5 percent so far this week as the euro popped
back above $1.3000, pulling away from a two-week low
around $1.2876 plumbed Friday.
The Fed, which ends a two-day policy meeting later on
Wednesday, is expected to replace its expiring 'Operation Twist'
programme with a fresh round of outright bond purchases.
Many economists believe the U.S. central bank will announce
monthly debt purchases of $45 billion.
"Although the view that the Fed will shift to outright
Treasury purchases is now very widely shared by market
participants, we do not believe it has been fully reflected into
markets or in positioning," said Vassili Serebriakov, a
strategist at BNP Paribas.
The euro was last at $1.3007, having retraced 50 percent of
its Dec. 5-7 fall from $1.3127 to $1.2876, and keeping gains
after Tuesday's surprisingly strong Germany's ZEW economic
Morale among German analysts and investors improved sharply
in December, fanning hopes that Europe's largest economy may
avoid recession this winter despite all the grim news out of
other parts of the region.
That contrasted with fall in U.S. consumer confidence, which
data showed last Friday posted largest drop since March 2011 in
November on worries about the fiscal crisis.
Many investors are expecting U.S. political leaders to
eventually reach a deal to reduce the planned fiscal tightening
but there has been no concrete sign of progress so far, with top
Republican lawmakers rejecting a new offer by President Barack
Obama on Tuesday.
HUNGRY FOR YIELDS
The spectre of further easing in the United States is
putting a fresh focus on higher-yielding currencies.
The Australian dollar hit a three-month high of $1.0541 and
last stood at $1.0533, near late U.S. levels.
"The Aussie remains one of a few currencies with yields
therefore investors have no choice but to buy," said a trader at
a European bank.
The Canadian dollar was near a seven-week high of C$0.9858
per U.S. dollar hit on Tuesday while the New Zealand
dollar also stood near a nine-month peak of $0.8398.
The Australian dollar also hit a 8 1/2-month high of 87.01
yen as the yen has been hurt by speculation that the
Bank of Japan will take more aggressive easing steps after a
likely victory of the Liberal Democratic Party in the country's
election on Sunday.
LDP leader Shinzo Abe has called for unlimited easing. The
Bank of Japan is also expected to expand its own asset-buying
and lending programme at next week's policy meeting.
Against the U.S. dollar, the yen was little changed at 82.55
yen, not far from 7 1/2-month peak of 82.84 yen hit
almost three weeks ago.