The US dollar fell against the euro on Tuesday as worries about Dubai's debt problems eased, while rising stock and commodity prices also dimmed the greenback's safe-haven allure. The yen weakened after the Bank of Japan announced more monetary easing measures to fight deflation and help the ailing economy while holding interest rates at 0.1 percent.
News that state-owned conglomerate Dubai World will restructure about $26 billion of its estimated $59 billion debt calmed investor fears of another global credit meltdown, helping push equity markets higher. "The (Dubai) problem is contained. It's much smaller than originally anticipated," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto. "We saw risk appetite really increase once again and investors were willing to buy riskier assets across the board."
The Reserve Bank of Australia's move to raise interest rates for a third straight month to 3.75 percent also fed investors' appetite for risk, along with reports showing better-than-expected European manufacturing data and strong German retail sales. In late trading, the euro rose 0.7 percent to $1.5107, not far from a recent 15-month peak just above $1.5140.
The ICE Futures dollar index, a measure of the greenback against a basket of six currencies, fell 0.6 percent to 74.418. On Wall Street, US stocks jumped as data reassured investors about the health of the battered US housing market. The Dow Jones industrial average hit its highest close in 14 months.
The dollar was up 0.3 percent at 86.62 yen, after hitting a 14-year low around 84.81 yen last week, according to Reuters data. The euro rose 1 percent to 130.87 yen. The BoJ offered banks more short-term funds after an emergency meeting on Tuesday and said it will provide 10 trillion yen ($115 billion) in three-month funds at a fixed rate of 0.1 percent in a bid to bring down longer-term rates.
Political pressure on the BoJ to avert recession has grown, but Tuesday's decision was seen as a way to avoid a return to a narrow form of quantitative easing, under which the BoJ slashed rates to zero and flooded markets with cash in 2001-06. Commodity-linked currencies jumped as oil prices rose towards $79 a barrel and gold hit record highs above $1,200 an announce.
The Australian dollar rose 1.2 percent to US $0.9262, although gains have been limited as most analysts think the RBA would pause after Tuesday's rate increase. The New Zealand dollar gained 1.7 percent to US $0.7273, while the US currency fell 1.2 percent to C$1.0430 versus its Canadian counterpart.
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