* 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 hovered near
multi-month lows against higher-yielding currencies on Wednesday
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
"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 80.10, barely changed from
late U.S. levels but down 0.5 percent so far this week. For now,
it is holding above a 61.8 percent retracement of its rally last
week at 80.00 but a fall below that level could open the way for
a test of six-week low of 79.568 hit a week ago.
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, which will come on top of
mortgage bond buying of $40 billion a month the bank started in
"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 pulled away further from a two-week low around
$1.2876 plumbed Friday and last stood at $1.3001, 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 a fall in U.S. consumer confidence,
which data showed last Friday posted its 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 threat of automatic and
aggressive fiscal tightening but there has been little concrete
signs of progress in negotiations.
HUNGRY FOR YIELDS
The spectre of further easing in the United States is
putting a fresh focus on higher-yielding currencies as the
world's four most liquid currencies -- the dollar, the euro, the
yen and the pound -- all have near zero interest rates now.
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.
Still, on charts the Aussie is near the top end of a
contracting triangle dating back to July last year, which comes
around $1.0570 this week and could be a strong resistance level.
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 stood near a nine-month peak of $0.8398.
The Australian dollar hit an 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 weakened about 0.2 percent
to 82.65 yen, not far from 7 1/2-month low of 82.84 per
dollar hit almost three weeks ago.
There was limited reaction in the yen 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.