The dollar fell on Thursday, touching three-week lows against the euro after a report pointed to only modest economic growth and investors continued to fold on positions in support of the US currency.
Federal Reserve chief Alan Greenspan also dealt a blow to the dollar, saying in a speech that some private and official investors were shifting to euros from the greenback.
The dollar has been under pressure since the Federal Reserve left the benchmark federal funds rate unchanged at 5.25 percent on Wednesday - as expected - but failed to deliver the stern warning on inflation that some dollar bulls had hoped for.
"It appears that we're trading a bit softer in the dollar following the FOMC statement ... and this is largely due to dollar bulls who had hoped for a more hawkish statement than was actually delivered," said Michael Woolfolk, senior currency strategist at Bank of New York. The euro was up half a percent on the day at $1.2665 in late morning trade, after climbing as high as $1.2678.
After dipping to three-month lows just below $1.25 earlier in the month, the euro has sprung back to trade roughly in the middle of the range it has occupied for the past five months.
The dollar fell 0.4 percent against the yen to 118.60 yen. The greenback rose as high as 119.88 yen earlier in the month, but has not traded above the psychologically key 120 level since December.
Data on Thursday - including durable goods orders and new homes sales for September - merely reinforced the view that the economy is slowing, but only moderately, which should allow the Fed to keep interest rates on hold, analysts said.
The dollar slipped after durable goods data for September showed that after stripping out volatile transport orders, growth was less than forecast. That offset a 7.8 percent surge in the headline figure, the largest rise in more than six years.
Meanwhile other data showed that new homes sales rose by more than expected in September, although the median sales price logged its biggest year-on-year drop since December 1970.
Reflecting a view that prices are unlikely to break out of well-worn ranges any time soon, implied volatilites on 1-month euro/dollar options have slumped to record lows, with dollar/yen volatilites around their lowest in a decade.
"What this suggests that not only are the 1.25-1.30 and 115-120 ranges here to stay, but over the short term the market could be in for a lot of profit-taking as the USD-longs start to unwind more aggressively," Divyang Shah, strategist in London at IDEAglobal wrote in a note to clients.
Meanwhile, the euro was trading at 150.25 yen, after rising to just shy of 150.50 yen - its highest in nearly two months and near a record high of 150.78 yen struck at the end of August.
The euro gained support earlier in the session after European Central Bank President Jean-Claude Trichet said inflation risks in 2007 remained on the upside, and the ECB should remain vigilant to ensure low inflation.
The next focus for traders will be US third-quarter growth figures on Friday. The report is expected to show 2.2 percent growth in gross domestic product, slowing down from 2.6 percent growth in the previous quarter.
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