Tuesday October 20, 2009 - 11:04:09 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar hits 14-mth low vs basket, euro nears $1.50
Tue Oct 20, 2009 6:46am EDT
* Dollar extends broad losses, hits 14-month low vs basket
* Weakness on mix of Bernanke, Trichet, RBA, Fujii, stocks
* Euro nears $1.50 but options-related selling caps gains
(Updates prices, adds comment and quotes)
By Jamie McGeever
LONDON, Oct 20 (Reuters) - The dollar hit a 14-month low against a basket of currencies on Tuesday on a cocktail of policymaker comments, but options-related buying kept it from pushing through $1.50 against the euro and 90 yen.
Strength in global stocks, fired by Apple Inc's (AAPL.O: Quote, Profile, Research, Stock Buzz) forecast-beating third-quarter earnings overnight, also fed traders' appetite to sell dollars for higher-yielding currencies and assets more closely correlated with economic recovery.
Comments on the euro's strength from an adviser to French President Nicolas Sarkozy and a Market News International report quoting an unnamed Chinese government source calling for a reversal of the dollar's slide had limited impact.
Until the market hears much stronger rhetoric from leading policymakers like European Central Bank President Jean-Claude Trichet, low U.S. interest rates coupled with rising asset and commodity prices will probably weigh on the dollar, analysts say.
"It's not that there's anything new out there that's dramatic. It's ongoing risk appetite, stronger equities, positive global recovery and the Fed showing no sign of raising rates. It's not easy for the dollar to get any traction," said Peter Frank, senior strategist at Societe Generale In London.
"It's one thing to say you want the dollar to stop weakening, it's another to put your money where your mouth is. The market isn't there yet, and won't take notice until it hears this kind of commentary more and from higher ranking officials," Frank said.
The dollar has been under sustained pressure this year due to expectations for low U.S. interest rates and questions about its status as the world's reserve currency.
At 1000 GMT the dollar index .DXY, a measure of its strength against six major currencies, was down 0.4 percent at 75.21 after dipping as low as 75.103, its lowest in 14 months.
After failing to take out options barriers at $1.50, the euro was last at $1.4978 EUR=, up 0.1 percent on the day. It earlier touched a 14-month high of $1.4994 EUR=, and slipped to $1.4955 after the Market News report on an unnamed Chinese government source's concern over the dollar.
The yuan jumped against the dollar in benchmark offshore non-deliverable forwards (NDFs) on Tuesday as overseas speculators bet on the long-term appreciation of the Chinese currency which has been mainly propelled by a weak dollar on global markets.
The dollar fell a third of a percent against the yen to 90.30 yen JPY=, a move lower also aided by the narrowing of the U.S.-Japanese 10-year bond yield spread to 200 basis points Tuesday from around 215 basis points late last week.
Comments by Japanese Finance Minister Hirohisa Fujii that dollar weakness was due to U.S. monetary easing were used as an excuse to sell the dollar down to 90 yen, where traders say there are options expiries later today [ID:nTKF106680].
EUROPE GETTING TWITCHY ON EURO?
Some traders had trimmed long euro positions on Monday ahead of a meeting of euro zone finance ministers and ECB President Trichet. The meeting discussed FX rates but Trichet repeated the line that he backed U.S. officials' view that a strong dollar was in the U.S. interest. [ID:nLJ198299]
On Tuesday, Henri Guaino, a top adviser to French President Sarkozy, said the euro at $1.50 is a "disaster" for European industry and the economy.
A trade-weighted measure of the euro's value against 24 major trading partners EUREER=ECBF was fixed lower on Monday, but remained very close to its all-time high.
U.S. Federal Reserve Chairman Ben Bernanke called on Monday for action on global imbalances, saying China and other Asian countries were looking more seriously at rebalancing though some issues could be addressed through greater FX flexibility. Some analysts saw this as veiled endorsement of a lower dollar.
"Bernanke's comments are being taken by the market that rates are on hold for longer. That's risk-positive and dollar-negative," said Geoff Kendrick, strategist at UBS in London, adding that the euro at $1.50 was only a matter of time.
The Australian dollar climbed as far as $0.9310 after minutes from the Oct. 6 Reserve Bank of Australia policy meeting said it may be imprudent to keep rates very low. [ID:nSYD486436] It was last down slightly on the day at $0.9275 AUD=.
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