- The dollar moved higher against the yen on Tuesday and rose to the highest level in four years against the Canadian dollar amid expectations that the Federal Reserve will continue to unwind its stimulus program this month.

USD/JPY rose to highs of 104.75, the strongest since January 16 and was last up 0.47% to 104.66.

Demand for the dollar was underpinned by expectations for a reduction to the Fed’s quantitative easing program at the outcome of its next policy meeting on January 29 to USD65 billion from the current USD75 billion.

Investor demand for the safe haven yen was hit after China’s central bank moved to inject liquidity into the financial system overnight, easing concerns over a possible credit crunch.

EUR/USD touched lows of 1.3516, and was last down 0.18% to 1.3528.

The shared currency slipped after the ZEW Centre for Economic Research said its index of German economic sentiment ticked down to 61.7 this month from 62.0 in December. Analysts had expected an increase to 64.0.

However, the current conditions index rose to a 20-month high of 41.2 from 32.4 in December, beating expectations for an increase to 34.1.

The dollar was little changed against the pound, with GBP/USD dipping 0.01% to 1.6427, and was higher against the Swiss franc, with USD/CHF up 0.37% to 0.9132.

The Australian dollar was trading close to three-and-a-half year lows, with AUD/USD down 0.34% to 0.8781. Meanwhile, NZD/USD was down 0.27% to 0.8302, after rising as high as 0.8340 earlier.

The kiwi initially gained ground after data released on Tuesday showed that New Zealand’s inflation rate rose 0.1% in the fourth quarter and 1.6% on a year-over-year basis. Market expectations were for a 0.1% drop on the quarter and gain of 1.5% on the year.

Meanwhile, USD/CAD advanced 0.50% to 1.1003, the highest level since October 2009. The loonie, as the Canadian dollar is also known, remained under pressure amid expectations that the Bank of Canada will stick to its dovish stance on rates at Wednesday’s policy meeting.

Also Tuesday, the dollar rose to record highs against the Turkish lira after the country’s central bank left interest rates unchanged at 4.5%. The decision came amid escalating concerns over the lira’s recent sharp depreciation and worsening inflation expectations. USD/TRY rose to highs of 2.2694 and was last up 0.46% to 2.2502.

The U.S. dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.29% to 81.47.

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