Investing.com - The U.S. dollar hit multi-month lows against the euro and the pound on Wednesday, as market sentiment was bolstered by hopes for a deal to avoid the U.S. fiscal cliff, but the yen remained broadly weaker amid expectations for more easing by the Bank of Japan.
During European afternoon trade, the greenback hit its lowest level since early April against the euro, with EUR/USD rising 0.54% to 1.3301.
Investor confidence was boosted by signs of progress in negotiations aimed at avoiding the fiscal cliff, automatic tax hikes and spending cuts due to take effect on January 1, which investors fear could threaten U.S. and global growth.
In the euro zone, data showed that German business confidence continued to improve in December, in spite of the deteriorating outlook for the euro zone economy.
The Ifo economic institute's German business climate index came in at 102.4 points this month, up from 101.4 in November, beating analysts' expectations for a reading of 102.0.
The dollar was at 20-month highs against the yen, with USD/JPY gaining 0.29% to trade at 84.44.
The yen was pinned down by expectations that the BoJ would announce more aggressive easing steps after its policy meeting on Thursday following an election victory for Japan's Liberal Democratic Party over the weekend.
Earlier Wednesday, official data showed that Japan posted an annual trade deficit of JPY953.4 billion in November, the fifth successive month of deficit and the third-largest deficit on record.
The greenback was at three-month lows against the pound, with GBP/USD climbing 0.29% to 1.6297.
The pound found support after the minutes of the Bank of England's December policy meeting showed that the monetary policy committee was split eight-to-one, with just one policymaker in favor of further easing this month.
The greenback was hovering close to seven-and-a-half month lows against the Swiss franc, with USD/CHF down 0.42% to 0.9091.
The greenback was broadly higher against its Canadian, Australian and New Zealand counterparts, with USD/CAD inching up 0.10% to 0.9866, AUD/USD down 0.31% to 1.0501 and NZD/USD losing 0.52% to trade at 0.8369.
Sentiment on the commodity linked currencies was hit as growing optimism over progress in resolving the debt crisis in the euro zone saw investors favor the single currency.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.40% to a two-month low of 79.05.
Later Wednesday the U.S. was to publish government data on building permits, housing starts and crude oil stockpiles.
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