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Wednesday November 25, 2009 - 12:29:33 GMT
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FOREX-Dollar index hits 15-mth low after Fed minutes

Wed Nov 25, 2009 7:05am EST

* Dollar hits 15-mth low vs currency basket

* FOMC minutes: Dollar decline has been "orderly"

* Dollar/yen hits 10-mth low, nears 13-year trough

(Adds comment, updates throughout)

By Naomi Tajitsu

LONDON, Nov 25 (Reuters) - The dollar hit a 15-month low against a currency basket on Wednesday after Federal Reserve minutes showed policymakers saw the U.S. currency's recent decline as "orderly".

Traders dumped the U.S. currency across the board, pushing it down to a 10-month low against the yen, as the minutes also reinforced the view U.S. interest rates will stay essentially at zero until around mid-2010.

The U.S. currency's latest bout of weakness came as European shares rose 0.7 percent and gold XAU= hit a record high of $1,179.80, underlining the trend for investors to diversify away from the dollar and into other assets.

Minutes from the U.S. central bank's November meeting showed board members considered the dollar's fall against major currencies since March "orderly", further persuading investors the U.S. currency will stay weak. [ID:nN24313828]

"When the Fed says the dollar's decline has been 'orderly' ...they're implicitly saying this is not something they will do anything about," said Johan Javeus, chief currency strategist at SEB in Stockholm.

The dollar has been sold for much of 2009, falling 8 percent on a trade-weighted basis and 30 percent versus the high-yielding Australian dollar since January on the view U.S. rates will stay low as other countries start to raise theirs.

By 1144 GMT, the dollar index .DXY, which measures its performance against a basket of six currencies, had fallen 0.8 percent to 74.438.

The euro EUR= hit a 15-month high of $1.5096 and was last up 0.8 percent at $1.5076. The Swiss franc CHF= briefly hit parity against the U.S. dollar.

Traders said dollar losses accelerated after Russia's central bank said it would use part of its reserves to purchase Canadian dollars, underlining moves by central banks to diversify out of the U.S. currency.

The dollar fell 1 percent to 87.64 yen JPY=, according to Reuters data, off a low of 87.57. It approached a 13-year low of 87.10 hit in January.

A strong yen is seen hindering growth in Japan, which relies heavily on exports to keep it as the world's No. 2 economy. Yen strength makes exports expensive, cutting demand from overseas.

Data on Wednesday showing exports rose on the month in October while posting a smaller-than-expected fall on the year suggested Japanese firms may be weathering yen strength at the moment. [ID:nT323072]

ORDERLY DOLLAR FALL

The Australian dollar AUD=D4 rallied 1 percent to $0.9293 after bullish comments from Australia's central bank raised speculation of an interest rate hike next month. [ID:nSYD514867]

Movements in the options market were consistent with the Fed's view that the dollar's decline has been orderly.

One-month euro/dollar implied volatility EUR1MO= traded in the low 10 percent region on Wednesday, edging towards the year's low in the mid-9 percent area hit in September.

Risk reversals, which indicate how volatile a rise or fall is likely to be, showed a move lower in the dollar is not expected to be erratic.

Euro/dollar risk reversals EUR1MRR= were at around 0.9 percent in favour of euro puts -- the right to sell the single currency at an agreed price at a specified time -- indicating a rise in the euro against the dollar would be perceived as more orderly than a fall.

Dollar/yen risk reversals favour dollar puts, but not as much as they have in past months.

For a link to a graphic on the euro/dollar and risk reversals, click on:

here

For a link to a graphic on the dollar/yen and risk reversals, click on:

here

(Editing by Nigel Stephenson) ((naomi.tajitsu@reuters.com; +44 207 542 5830; Reuters Messaging: naomi.tajitsu.reuters.com@reuters.net))

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