by Jana Paskova
WBP Online Correspondent in Ottawa

The American dollar fell against most of its peers on Tuesday as the greenback lost traders' confidence before the US Federal Reserve policy meeting that may bring an implementation of a third round of quantitative easing. The Fed is slated to speak on the matter on Thursday.

The euro was up 0.80% against the greenback, rising to $1.2861 as of 5:12pm GMT, also hitting a four-month high earlier during the day after rating’s agency Moody’s issued a warning that it may cut the US credit rating if a debt solution is not instituted.

The US dollar lost 0.62% against the Japanese yen, trading at ¥77.79 at 5:12pm GMT. The British pound strengthened 0.50% against the greenback, standing at $1.6069 as of 5:13pm GMT.

The euro was higher against the pound, with the single currency up 0.31% to £0.8006 at 5:14pm GMT. The 17-nation euro added 0.20% against the yen to ¥100.08 as of 5:15pm GMT. 

The US dollar fell to a 13-month low against the Canadian dollar on Tuesday on expectations of Fed-conducted monetary easing. The greenback was down 0.54% against the loonie, trading at C$0.9724 as of 5:16pm GMT.

Global data

Traders have their eyes on the US Federal Reserve that could introduce a third round of quantitative easing (QE3) to boost economic growth on Thursday.

Investors were also awaiting a decision by the German Constitutional Court over legitimacy of an European rescue fund. The court ruling is scheduled to be published on Wednesday.

The Federal Constitutional Court decided that it will proceed as planned and rule on the constitutionality of the European Stability Mechanism (ESM) on Wednesday. If the court rules the ESM unconstitutional, the integrity of the euro project could easily get clouded and markets would probably respond with plunges.

Currencies were moved by disappointing US jobless data released on Friday last week, as the US economy added fewer-than-expected jobs in August, which is increasing the likelihood that the Fed will act to strengthen the US economic recovery.

Earlier Tuesday, official data showed that the US trade deficit widened less-than-expected in July, to a seasonally adjusted $42 billion, holding just above the 18-month low gap hit in June. Analysts had expected the U.S. trade deficit to widen to $44.4 billion.

Data from Canada showed that Canada's trade deficit with the world expanded from $1.9 billion in June to $2.3 billion in July, compared to expectations for a deficit of C$1 billion.

On an upside in fundamentals, Canadian housing starts rose to 224,900 units in August from 208,000 in the previous month, beating expectations for a decline to 200,000.

To contact the author of this story e-mail jana.paskova@wbponline.com

Photo: ISIFA