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U.S. dollar weakens in advance of midterm elections

by Jorge Hernandez on November 2, 2010

As the Federal Reserve prepares to purchase at least $500 billion in long term-securities, the U.S. dollar weakened Monday while stocks and index futures rose. Bloomberg reports that the dollar depreciated against 12 of 16 most-traded peers.

Among the countries that rose in relation to the U.S was Australia, which reached its highest level since 1983. Additionally, the dollar depreciated one percent to 1.4029 per Euro. The dollar also lost ground against the Yen, and is now at a 15-year low compared to the Japanese currency. The decision of the Fed to buy long-term securities comes as policy makers scramble to boost the economy in the wake of Tuesday's mid-term elections. The dollar's value will likely remain in question over the coming weeks as well, experts say.

"The dollar is likely to remain under pressure while the market is waiting for more clarity from the Federal Reserve and the election result," Henrik Gullberg, a currency strategist at Deutsche Bank AG in London, told the news source. "Concern that there will be a political gridlock that would prevent the U.S. government from pursuing efficient policy is weighing on the currency."

With the dip in the value of the dollar, stocks and futures in the U.S. rose. The futures index, which is often used for hedging, trading and investments, has been growing over the last several months, rising 13 percent in September and October.

The devalued dollar comes as the United States still tries to recover from economic turmoil of the last two years. Though the fact that the economy had a modest rebound over the last several months, it may not have been enough to foster enough confidence in the dollar.

"Until such time as we get some clarity on the level of further stimulus the US dollar will continue to remain under pressure," CMC Markets analyst Michael Hewson told AFP.

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