On Monday dollar declined on the back of St. Louis Fed president James Bullard’s comment that strengthened the expectation that US interest rate are likely to remain low for some time in future. James Bullard commented that the Fed should continue with its mortgage-related assets purchase program to stimulate the economy which investors took as an cue that the easy monetary policy will continue. Low US interest rates reduces returns on U.S. investments prompting investors to branch out of the dollar and hold other riskier currencies and assets with higher yields.

Also gains in stock market and increase in gold and oil prices also undermined the position of dollar. With investors looking for an alternative investment to a declining dollar, gold prices increased to a record high of $1,174 an ounce. Gold is considered to be a hedge against the dollar because of its property of being a stable source of value.

The dollar index which measures dollar against six major currencies declined by 0.7% to 75.131 after hitting a two-week high of 75.879 on Friday. The euro increased by 0.7% at $1.4961 after reaching a high of $1.5001. The British pound also increased to $1.6621 from $1.6481. Against the Japanese Yen the euro increased by 0.8% to ¥133.16. The dollar also gained against yen by 0.1% to ¥88.98 after reaching a six-week low of ¥88.58.  With gold and oil prices hitting a high, commodity linked currencies gained. The Australian dollar increased by 0.9% to US$0.9238 while the New Zealand dollar increased by 1.2% to US$0.7324.Against other important currencies the dollar declined to 1.0093 Swiss francs from 1.0182 francs, and against Canadian dollar declined to 1.0553 Canadian dollars from 1.0714.

Euro was helped by ECB president Trichet’s comment that it plans to discuss exit from quantitative easing strategy. Trichet added that with situation becoming normal the bank is thinking of a gradual phasing out of stimulus measures. This remark reinforced the view that the ECB is likely to exit from its easy monetary policy before Fed. Also Euro gained after a survey result showed that the service sector in the Euro zone grew at its fastest rate in November indicating that the economic recovery will continue in the fourth quarter.

On the economy front there was positive economic news with industry report showing that U.S. existing home sales has increased to more than two and a half year high in October. As per data from the National Association of Realtors sales of existing homes increased by 10.1 percent from September to October. A recovery in the housing market is taken as an indicator of an economic rebound which helped the stock market and pushed the dollar lower. Since early 2008 stock markets and dollar are moving inversely with positive economic report helping the stock market and lowering the dollar.