Asian session: The dollar dropped

The dollar dropped to a four-month low against the euro before the Federal Reserve starts a two-day policy meeting today amid speculation it will decide to buy bonds to boost the economy. The Fed bought $2.3 trillion of securities from 2008 to 2011 in two rounds of so-called quantitative easing. In an Aug. 31 speech, Fed Chairman Ben S. Bernanke said weak hiring and unemployment exceeding 8 percent posed a “grave concern” and that bond purchases are a policy option.

The U.S. currency weakened versus most of its 16 major counterparts following a decline yesterday after Moody’s Investors Service said the country’s Aaa rating may be cut if it doesn’t reduce its ratio of debt to gross domestic product.  Moody’s, which placed a negative outlook on the U.S.’s Aaa grade in August 2011, said in a statement yesterday that the rating would probably be cut to Aa1 if no policy is passed to address a mounting debt to GDP ratio.

The euro was near a two-month high against the yen before Germany’s Federal Constitutional Court issues its ruling today on the country’s participation in Europe’s bailout fund. Germany is the only country that hasn’t ratified the European Stability Mechanism, a 500 billion-euro ($643 billion) fund that offers loans to euro-zone members and may buy their bonds to lower borrowing costs. If today’s court ruling means it can’t join, the mechanism won’t be created and other bailout measures might be thrown into doubt.

EUR / USD: during the Asian session, the pair continued yesterday's growth.

GBP / USD: during the Asian session, the pair hold about yesterday's high.

USD / JPY: during the Asian session, the pair rose, departing from the previous day's low.

European data starts early and includes August HICP data from France at 0530GMT, which is expected to come in at 0.8% m/m, 2.4% y/y as well as Germany at 0600GMT (preliminary was 0.3% m/m, 2.2% y/y) and also Spain at 0700GMT (2.7% y/y preliminary). The German  Constitutional Court ruling on the ESM comes in the morning. US data starts at 1100GMT with the weekly MBA Mortgage Application  Index. US data continues at 1230GMT with the August Export/Import Price Index and then at 1400GMT with July Wholesale Inventories and 1430GMT with the weekly EIA Crude Oil Stocks data.