The dollar fell to a two-year low against the euro on Thursday on expectations the US Federal Reserve will continue its bond purchases well into next year. The euro shrugged off disappointing data showing the pace of growth in euro zone business unexpectedly eased this month. Talk of heavy buying by central banks in Asia also boosted the common currency.
A shutdown of the US government earlier this month and weaker-than-expected September jobs data fuelled concerns about the economy. A Reuters poll showed a majority of US primary dealers do not expect the Fed to start cutting stimulus until March of next year. "Regarding the US dollar, we recently moved to a small short position," said Vassilis Dagioglu, head of asset allocation portfolio management at Mellon Capital in San Francisco.
"The persistent bullish dollar theme, as a result of a perceived Fed taper that has been present since May, now seems to have diminished to a degree." The euro rose 0.2 percent to $1.3803, having hit as high as $1.3825, according to Reuters data, its strongest since November 2011. Some analysts said the euro may struggle to make a sustained break above $1.38.
"The disappointing tone of the euro zone data will suggest that the euro is looking toppy up here, and this should keep euro/dollar in check," said Jane Foley, senior currency strategist at Rabobank in London. Against a basket of currencies, the dollar hit a near nine-month low of 79.081 and was last down 0.1 percent at 79.184. The dollar slipped 0.1 percent against the yen at 97.28 yen but held above Wednesday's two-week low of 97.13 yen, according to Reuters data.
The Australian dollar got a boost from data showing Chinese manufacturing at a seven-month high in October. But it later surrendered gains and last traded at $0.9614, down 0.1 percent. Analysts said concerns remained about rising money market rates in China, which may weigh on the Australian currency. China's benchmark seven-day repo rate rose nearly a percentage point on Thursday after China's central bank let cash flow out of the money market for a second week.
"Those underlying concerns kept currencies with close ties to China, like the Aussie and loonie (Canadian dollar), from participating in the broader risk rally," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. The New Zealand dollar fell 0.5 percent to $0.8347, while the Canadian dollar also slid with the greenback rising 0.4 percent to C$1.0423.
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