FOREX-Tame price data adds to dollar's September swoon
(Updates prices, adds remarks from Fed's Poole)
By Steven C. Johnson
NEW YORK, Sept 28 (Reuters) - The dollar hit a record low against the euro and slumped to an all-time low against a basket of major currencies on Friday as tame inflation data bolstered the case for more interest rate cuts to shore up the U.S. economy.
The Federal Reserve dropped benchmark rates to 4.75 percent last week to shield a sluggish economy from housing and credit crises, and additional rate cuts would further erode the appeal of dollar-denominated assets in the eyes of global investors.
"Everybody has jumped on the anti-dollar bandwagon. The growth story is turning firmly against the dollar, and the Fed is clearly trying to reflate the economy," said Samarjit Shankar, director of global FX strategy at Bank of New York Mellon in Boston.
A muted rise in a monthly measure of U.S. core consumer prices, which exclude food and energy items, helped lift the euro above $1.42, its seventh record high in as many days.
It later sailed through options-related barriers around $1.4250 to a record peak of $1.4278 before easing to $1.4255, up 0.8 percent. Sterling rose 0.9 percent to $2.0460.
The euro has gained 4.75 percent on the dollar so far this month and 5.4 percent during the third quarter ending Friday, the largest increase since the second quarter of 2006.
The dollar index, a gauge of the greenback against a basket of six currencies, hit a record low for the second straight day at 77.666 before easing back up to 77.767, off 0.7 percent.
That left it down 3.8 percent in September, its worst month since April 2006. For the quarter, the index was down 5.1 percent, its largest drop since a 7.5 percent slide in the fourth quarter of 2004.
The third quarter has been good for the Japanese currency, which gained as investors unwound trades funded through cheaply borrowed yen. Such carry trades were hit when U.S. subprime mortgage troubles turned into a global liquidity squeeze.
The dollar has shed 6.8 percent against the yen in the last three months, the biggest quarterly decline since the fourth quarter of 2004.
The dollar fell 0.6 percent on Friday to 114.85 yen and dropped 0.7 percent against the Canadian dollar to C$0.9945, leaving parity further behind.
DOLLAR REBOUND EYED
The mild rise in consumer prices should reassure the Fed, which has been on alert for signs of building inflation pressures.
But St. Louis Federal Reserve President William Poole said on Friday that officials were keeping an open mind on rates and said it would be a mistake to factor in more rate cuts.
Analysts, meanwhile, said strong euro-zone growth, including Friday's reported 2.1 percent gain in the consumer price index, keeps an interest rate hike from the European Central Bank in play, further denting the yield advantage of dollar assets.
But European policymakers continued to fret about the speed and scope of the euro's recent gain, fearing it will undermine euro-zone competitiveness and business productivity.
On Friday, Eurogroup chairman Jean-Claude Juncker expressed "great concern" about the exchange rate and said Washington should take measures to strengthen the dollar.
Shankar said the euro rise may end up keeping the ECB on the sidelines when it comes to raising interest rates, and any sign of that would likely spark a short-term dollar rebound.
"It's too early to write off the dollar entirely," he said.
But others stressed the gloomy outlook for U.S. growth.
"The euro will probably hit some resistance soon, and European official complaints will get louder, but given the strength of the dollar sell-off I don't see a correction lasting very long," said Ezechiel Copic, senior currency strategist at IDEAglobal in New York. "Our target is $1.45 before the end of the year and that still looks likely." (Additional reporting by Lucia Mutikani)