Forex - Dollar firms as investors flock to safety

Investing.com - The dollar rose in early Asian trading Monday as investors ran to the greenback to safety to gauge whether optimism stemming from Europe's Friday agreement to align spending will turn into reality.

Gold and euro prices dropped amid the early-session scarmble for dollars.

In Europe on Friday, 26 eurozone countries agreed to better coordinate and integrate their fiscal policies as well as allocate 200 billion euros to the International Monetary Fund to help fence in the crisis, containing it to economies like Greece and Italy in order to prevent it from doing further damage to the larger France and Germany.

Hopes that a 500 billion euro European Stability Mechanism will ease the crisis alongside an existing but temporary 440 billion euro European Financial Stability Facility also boosted the euro in recent sessions.

But traders spent Monday focused more on the U.S. and less on Europe, which must now turn commitments to align fiscal policies across the continent into reality.

During early Monday trading, the greenback was up against the euro, with EUR/USD falling 0.25% to hit 1.3353.

Gold, a traditional hedge against a the dollar when it weakens, was down as well.

On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,713.35 a troy ounce during Asian trading, down 0.20%

The greenback also strengthened against the pound, with GBP/USD falling 0.18% to hit 1.5642.

Markets shifted their focus over the weekend to the U.S. from Europe, digesting economic data ahead of an all-important Federal Reserve's meeting on Tuesday, when economic policymakers will shed light on the health of the U.S. economy.

Last week, the Bureau of Economic Analysis said that the U.S. trade deficit hit a seasonally adjusted $43.5 billion in October compared with a revised $44.2 billion in September.

The deficit fell in line with market forecasts, although the September revision was a little higher than expected.

Also last week, the University of Michigan consumer sentiment index shot up higher than expected in November, hitting a seasonally adjusted 67.7 from 64.1 in the preceding month.

In the United Kingdom, the government reported a trade deficit of 7.5 billion pounds, much lower than a forecast for a 9.5 billion pound trade gap.

U.K. producer price inflation input rose to a seasonally adjusted 0.1% last month from -0.8% in the preceding month.

In Asia, China reported that consumer price index came in at 4.2% in November, below consensus of 4.6% and well below October's 5.5% rate.

The data showed that inflationary pressure in China may be cooling.

Meanwhile, the greenback was creeping up against the yen, with USD/JPY was trading at 77.62, up 0.01%, and also firming against the franc, with USD/CHF trading up 0.31% at 0.9260.

The greenback was stronger against currencies in Canada, Australia and New Zealand, with USD/CAD climbing 0.31% to hit 1.0200, AUD/USD sliding 0.35% to 1.0183 and NZD/USD dropping 0.28% to hit 0.7734.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.22% at 79.31.

Looking ahead, markets everywhere will shift their focus to the Federal Open Market Committee before it announces it latest decision on interest rates on Tuesday.

Retail sales data is due out on Tuesday as well, which will provide insight if consumers are spending and if inflation merits policy changes, or at least fresh considerations of new policy decisions.

The Federal Reserve's benchmark interest rate target currently stands at 0.25%, a very low and expansionary figure.

Talk of continuing loose monetary policies, including hints of a third round of quantitative easing, would weaken the U.S. currency, and talks that the economy is moving ahead on firm footing would be bullish for the greenback.