FXstreet.com (Córdoba) - The dollar weakened further across the board early American session as the ratings agency Moody's threatened to cut US triple-A rating. Moody's Investors Service said the US rating could be cut unless budget negotiations next year lead to a reduction in the ratio of federal debt to gross domestic product over the medium term. The US currency was already under pressure amid growing speculation the Federal Reserve may announce further monetary easing on Thursday when the FOMC 2-day meeting concludes. EUR/USD hit a 4-month high of 1.2836, its highest since May 15. The shared currency was also supported by expectations a German court will back the euro zone bailout fund. The USD/JPY fell below the key 78.00 area, and printed a 3-month low of 77.73, while the USD index fell below 80.00 to a 4-month low. US stocks open higher after data US stocks opened mildly higher despite Moody's warning, as domestic data boosted investors' confidence. The Dow Jones rose 0.5%, while the S&P added 0.4%. The Nasdaq gained 0.3%. In the macroeconomic domain, a report showed that even though US trade deficit expanded in July, it widened less than expected. July trade deficit was little changed at $42.0B, with exports down by 1% m/m and imports down by 0.8% m/m. Meanwhile, the National Federation of Independent Business's Small Business Optimism Index for August increased to 92.9 from 91.2 in July. In Europe, stocks were mixed, with the Stoxx Europe 600 down 0.3%, as investors remain cautious ahead of key decision this week by Germany's top court. "Today's global economic data is also constructive on balance, and while we don't view that as a driver of currency markets, it is probably supportive of today's overall market trends as well", comments the Wells Fargo analyst team. Gold rose 0.4% to $1,739.10 an ounce, while crude-oil futures gained 0.5% to $97.05 a barrel. German constitutional court will rule on the ESM as scheduled On Wednesday, Germany's constitutional court will rule on the powers of the European Stability Mechanism as scheduled, and vote which is expected to approve the use of that financial aid fund. Meanwhile, Netherland's general election will also take place on Wednesday, with voters divided between bailouts for troubled euro zone economies and austerity measures locally. European authorities will meet to put together their blueprint for a new banking union. QE3 expectations continue to grow "Following another soft payrolls report, UBS Economics now expects the Federal Reserve will embark on a third round of quantitative easing at this week's board meeting. UBS expects it will purchase $500bn of Treasuries over the next 6 months", says the UBS analyst team. "With the expectation that the Fed will join the world's other major central banks in easing policy, we lower our near term dollar forecasts". Danske Bank analysts also expect the weakness in the labor market to tilt the balance in the FOMC in favor of additional quantitative easing to be announced this week. "This comes on top of an extension of the forward rate guidance to keep rates low until end 2015", Danske Bank team says. US Dollar As for the US currency, the dollar is likely to trade in a 1.25-1.35 range against the euro while remaining pinned around 78 against the yen over the next one to three months, according to UBS. "But longer term we continue to see the US economy's recovery propelling the dollar higher". "The German Court ruling tomorrow and the Federal Reserve announcement on Thursday hold the key as to whether recent foreign currency gains can be sustained", says Wells Fargo team. "In particular, investor expectations have moved towards further easing in form of balance sheet expansion, meaning the Fed may have to deliver for foreign currencies to fully consolidate their recent gains".

Source