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Wednesday October 14, 2009 - 20:24:24 GMT
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FOREX NEWS-Dollar tumbles to fresh 14-month low vs euro

 

Wed Oct 14, 2009 4:17pm EDT

* Dollar hits 14-month low vs euro

* JPMorgan earnings, rising stocks boost recovery optimism

* Rising risk appetite, earnings send Dow to one-year peak

* Fed minutes suggest U.S. rates to remain low (Updates prices, adds comment, Stiglitz quote, FOMC details)

By Steven C. Johnson

NEW YORK, Oct 14 (Reuters) - The dollar slumped to a fresh 14-month low against the euro on Wednesday as soaring quarterly profits at JPMorgan Chase boosted market optimism and whetted investor appetite for higher-yielding currencies and assets.

Minutes from the Federal Reserve's last policy meeting showing officials do not consider inflation an imminent threat also undercut the dollar, as they suggest benchmark U.S. interest rates will remain low well into 2010.

That would dull the dollar's appeal, especially if other central banks start lifting interest rates as growth picks up.

"The minutes have a dovish tilt. The outlook was not as upbeat. The markets are taking this as dollar-negative, as it cements the view that the Fed will hold interest rates for a long time," said Richard Franulovich, senior currency strategist at Westpac in New York.

For the Fed minutes see [ID:nWEQ003473].

JPMorgan Chase's (JPM.N: Quote, Profile, Research, Stock Buzz) $3.6 billion profit helped push the Dow Jones industrial average .DJI above 10,000 for the first time in a year, while upbeat Chinese trade data also bolstered the view that a world recovery would be led by Asia and commodity-rich countries. [ID:nN13183184]

That pushed the euro to $1.4946 EUR=, its highest since August 2008. It eased to $1.4920 in late trade, up 0.5 percent. Analysts see a break above $1.50 in coming days.

The dollar fell 0.4 percent to 89.40 yen JPY= and sterling rose 0.3 percent to $1.5973 GBP=. The commodity-linked Australian dollar rose 0.6 percent to $0.9137 AUD= while the dollar fell 0.6 percent to a fresh 14-month low against its Canadian counterpart of C$1.0252 CAD=.

The better-than-forecast results from JP Morgan Wednesday and Intel Corp (INTC.O: Quote, Profile, Research, Stock Buzz) on Tuesday helped push the MSCI all-country world index .MIWD00000PUS to a one-year high.

For a graphic on the correlation between euro/dollar and world stocks, click here

WHEN WILL THE FED ACT?

In addition to cutting interest rates to near zero, the Fed has poured trillions of dollars into the financial system, partly through buying government and mortgage debt.

The minutes showed some officials wanted to increase the maximum amount of mortgage-backed debt purchases. Analysts said that also hurt the dollar because many in the market think the Fed should be considering how to wind down these programs.

"The Fed is lathering on the dollar-negative news rather thick," said Alan Ruskin, chief international strategist at RBS Securities in Greenwich, Connecticut.

The Fed minutes came a day after Fed Vice Chairman Donald Kohn minimized near-term inflation risks, bolstering market views that interest rates will remain low and the dollar weak.

Dollar weakness worries many other countries, however, which fear an excessively strong exchange rate will undermine their own recoveries and make their exports more costly.

The euro has gained some 20 percent against the dollar this year, and sources close to the meeting told Reuters that euro zone finance ministers may discuss exchange rates next week. [ID:nLE268043]

Canadian central bank and government officials have also worried aloud about Canadian dollar strength, as the majority of Canadian exports go to the United States.

Many economists, though, say a weaker dollar helps the United States pull out of recession by boosting exports and increasing savings. Provided the slide is orderly, few expect the government to intervene in the currency market to prop it up.

Nobel laureate economist Joseph Stiglitz on Wednesday told Reuters Television that "the government has to think twice about intervening in exchange rates," adding, "there are fundamental reasons why the dollar is weak and trying to keep it up from where the market level is would be very costly." (Additional reporting by Nick Olivari, Gertrude Chavez-Dreyfuss and Fred Katayama; Editing by James Dalgleish)

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