Forex - Dollar reverses losses despite talk of monetary easing

[John Starks]

Forexpros - The dollar firmed against most major world currencies on Thursday, reversing losses sustained on building expectations that the Federal Reserve is leaning towards spurring economic activity via monetary easing tools.

In Asian trading on Thursday, EUR/USD was trading down 0.10% at 1.2569.

Weak jobs reports, choppy housing recovery, lackluster economic growth rates and other disappointing economic indicators have fueled talk that the Federal Reserve may announce quantitative easing measures later this month.

Under quantitative easing, the Fed buys assets from banks, injecting the economy with liquidity with the aim of pushing down long-term interest rates and fueling growth.

As a side effect, the dollar weakens.

Federal Reserve Chairman Ben Bernanke is due to speak in Congress later Thursday and the U.S. central bank's monetary policy committee will meet next week to decide on interest and possibly rolling out easing measures to jolt the economy.

The dollar has weakened considerably under such sentiment though it rebounded in Asian trading Thursday after the Fed's Beige Book painted a somewhat rosier view of the U.S. economy.

European Central Bank President Mario Draghi, meanwhile, said downside risks still threaten the European economy, though he stopped short of announcing new long-term refinancing operations designed to ease credit conditions in Europe after a current program ends.

Though Draghi says the European Central Bank will act if needed, rates remain unchanged at 1.00%.

Ongoing concerns that Spain will face challenges propping up its banking sector while Greek elections loom with no clear frontrunner made the greenback attractive for safe-haven buyers.

The greenback was up against the pound, with GBP/USD down 0.17% and trading at 1.5470.

The U.S. currency was up against the yen, with USD/JPY trading up 0.13% at 79.29, and up against the Swiss franc, with USD/CHF trading up 0.10% at 0.9554.

The dollar was up against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.11% at 1.0287, AUD/USD down 0.34% at 0.9894 and NZD/USD down 0.27% at 0.7686.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.03% at 82.29.

Later Thursday, the U.S. will release government data on initial jobless claims, while Fed Chairman Ben Bernanke is to appear before the Joint Economic Committee in Washington.