Dollar falls versus euro

The dollar hit fresh 2-1/2 month lows against the euro and an 18-month low against sterling on Friday after further comments from China's central bank chief that the bank is looking to diversify its trillion dollar currency reserves.
With the bulk of the People's Bank of China's reserves thought to be in dollar-denominated assets, many interpreted Zhou Xiaochuan's comments as meaning China might buy fewer dollars from future reserve accumulation or trim current dollar holdings.
Zhou appeared to expand on similar remarks he made on Thursday, keeping the dollar under pressure. But he said there was no change to China's long-standing diversification policy. Analysts said the comments gave dollar bears a good excuse to sell, but the rhetoric did not represent a significant departure for the Chinese central bank.
"We've seen similar comments in the past - this is a reflection of broad (bearish dollar) sentiment and an over-concentration of dollar assets in the hands of oil exporters and central banks," ING analyst Chris Turner said. "If you look at something like sterling now on one-year deposit rates, you can now pick up 5.4 percent by putting your money into sterling as opposed to 5.2 percent in dollars so there's now more serious competition out there for where you stash your cash,"
By 1250 GMT the euro was up 0.3 percent on the day at $1.2869, having hit a peak of $1.2900, its highest since August 21. Sterling was half a percent higher at $1.9146, pulling back from an earlier 18-month peak of $1.9180.
The dollar was also a third of a percent weaker at 1.2387 Swiss francs, after touching a six-week low earlier. Zhou was speaking on the sidelines of a European Central Bank conference in Frankfurt, which several other central bankers are attending, including Federal Reserve Chairman Ben Bernanke.
The dollar and other currencies also came under pressure against the yen after Bank of Japan Governor Toshihiko Fukui said he was concerned about a sharp unwinding of carry trades where investors borrow the low-yielding Japanese currency and buy higher yielding currencies.
The ongoing carry trade lifted sterling to an eight-year high and the euro to a record high against the yen on Thursday. The dollar slipped 0.4 percent to 117.47 yen. The euro was flat at 151.18 yen, backing away from the record high of around 151.50 yen hit the previous day.