By: Sara Patterson

Hours before the Federal Reserve is expected to announce a new stimulus plan, the Dollar Index advanced for the third time in four days. The Euro also stabilized with renewed hopes that the US will lower its interest rates.

Although the nation’s interest rates are already at near historic lows, the Fed is expected to reduce these rates further, a move that several analysts have already likened to Operation Twist, a 1961 strategy designed to adjust the yield curve. Republican leaders, however, have sent a letter to Fed Chairman Ben Bernanke urging him not to implement a further stimulus plan, stipulating that it might harm the economy more than helping it.

There is no question that the Dollar has been harmed by the quantitative easing of late and that short-term yields have suffered a severe drop. The expected reduction in interest rates would be with the express goal of inspiring a rebound in the US housing market, a factor which is undoubtedly an essential component of any long-term and wide-reaching financial improvements.

The Greek government will also make an announcement about its intended austerity measures this week. On the heels of Italy’s credit downgrade, eyes are firmly planted on Europe, as regional banks strain in response to the crisis.