The dollar hit a six-month low against the euro on Friday after a Federal Reserve official said US growth has been generally disappointing, which strengthened the case for more quantitative easing. More action by the Fed to boost growth will likely be warranted unless the outlook improves, William Dudley, president of the New York Fed, said on Friday.
-- Dollar index hits 8-month low
-- Dudley comments on economy push dollar lower
-- Speculation of more Fed QE batters US currency
-- US ISM index falls, undermines dollar
The dollar did not get a boost from stronger-than-expected US personal income and consumption data as the currency's weak trend is firmly entrenched. The safe-haven dollar was also suffering from a return of risk appetite after the US data and a report showing China manufacturing was better than forecast.
Many analysts expect the Fed to start a new round of bond purchases, or quantitative easing, as soon as its next policy meeting on November 2-3. Such a move would push down yields on US Treasuries and make the dollar less attractive. "The only chance to keep the dollar supported for the near term is if the numbers start looking better," said Ron Simpson, director of FX research at Action Economics in Tampa, Florida.
"A lot of the future for the dollar is going to depend on the data. If the data stays decent, the market will start to price out quantitative easing," he added. The euro rose as high as $1.3784, its highest since mid-March, according to the EBS trading platform, breaking through resistance around $1.3692, a peak last hit in April. It was last up 1 percent at $1.3776. Markets also took out key option barriers at $1.3700 and $1.3750, traders said. A further barrier looms at $1.3800.
After that $1.38 level, the next big target is $1.3897, the 61.8 percent Fibonacci retracement of the move from the November 2009 peak and the June 2010 low. Asian central banks were seen selling the US currency for euros to rebalance their books. Market players said Asian central banks bought dollars versus local currencies in Asian hours and simultaneously sold the greenback to rebalance their reserve portfolios by buying euros.
The euro, which was up about 2 percent this week, ispoised to close above its 55- and 100-week moving averages at $1.3612 and $1.3572, respectively. Analysts said this would open the way to more gains. The euro gained more than 7 percent in September - its best monthly performance since December 2008. Losses against the euro helped push the dollar lower against a basket of major currencies, with the dollar index falling to 78.062 earlier, its lowest since January. The index fell more than 5 percent in September, its worst monthly drop since May 2009.
A weak US manufacturing survey, showing a dip in the Institute for Supply Management's index to 54.4 last month from 56.3 in August, also pressured the greenback. "Right now dollar weakness is across the board, so if we hit any technical or specific strength in a currency, it will just be exacerbated," said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.
The value of bets against the US currency was at its lowest since at least mid-2008, or $22 billion, according to the latest CFTC data released on Friday. Against the Japanese yen, the dollar fell 0.2 percent to 83.28 yen, edging closer to a 15-year low of 82.87 yen hit last month. Traders say a fall below that level may trigger intervention.
Banks in Japan are said to be on the bid in dollar/yen between 83.15 yen, a post-intervention low, and 83.35. Japanese Finance Minister Yoshihiko Noda said on Friday he would continue to take decisive steps on currency moves when necessary. US dollar weakness propelled the Australian dollar to a fresh two year-high against the US currency earlier at US $0.9751. Traders were wary, however, of pushing the Aussie dollar higher as global uncertainty has increased. The higher-yielding Australian currency thrives when there is risk-taking in the market.
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