Asian session: The dollar dropped

The dollar dropped to the lowest in seven months versus the yen amid speculation the Federal Reserve will announce it will buy bonds under a program of quantitative easing that tends to debase the currency. The Fed is projected to announce a third round of quantitative easing, or QE, today at the end of a two-day meeting, according economists in a Bloomberg News survey. The central bank is also predicted to extend the duration of its zero-interest-rate policy into 2015. Two previous series of bond purchases totaling $2.3 trillion have failed to revive the labor market, which Fed Chairman Ben S. Bernanke said last month is a “grave concern.”

Gains in the common European currency were limited after Greece’s Prime Minister Antonis Samaras received the second refusal in four days from coalition partners over plans to reduce spending that are key to receiving international aid.  The 17-nation euro rose yesterday after Germany’s constitutional court said the country can ratify the European Stability Mechanism, a 500 billion-euro ($646 billion) rescue fund. The court also ruled Germany’s 190 billion-euro contribution can’t be increased without legislative approval.

Italy will auction today as much as 6.5 billion euros of government securities maturing in 2015, 2017 and 2026.

The New Zealand dollar remained higher following two days of gains after the country’s Reserve Bank left its benchmark interest rate unchanged at 2.5 percent today, in line with expectations of all 16 economists surveyed by Bloomberg. Governor Alan Bollard, who will step down later this month, signaled rates would remain unchanged through mid-2013.

EUR / USD: during the Asian session, the pair rose to yesterday's high.

GBP / USD: during the Asian session, the pair traded in the range of $1.6100-25.

USD / JPY: during the Asian session the pair fell by updating the seven-month low.

At 0780GMT, the SNB announces monetary policy decision. No outright policy action is expected, although further comments underlining the forex floor are likely. At 0800GMT, the ECB is to publish the Sep Monthly Bulletin. At 0900GMT, Italian Aug final HICP data is released. US data also starts at 1230GMT, with the September 8th week Jobless Claims data and the August Producer Price Index.  The day's main event is set for 1630GMT, when the FOMC issues its policy decision after a two-day meeting, followed by updated quarterly economic projections at 1800GMT and Chairman Ben Bernanke's quarterly news conference at 1815GMT.