Dollar touches 15-year low

The dollar softened broadly on Monday, touching a 15-year low against a basket of currencies as investors speculated that rising credit market risk and softening US data could force a cut in US interest rates. The dollar index dipped below the psychologically key 80.0 level, while the euro hovered within sight of its record high above $1.3850 struck two weeks ago.
The deepening malaise in global credit markets sent US stocks tumbling on Friday, a move encouraged by weaker-than-expected US July employment data. The spillover continued into the weekend with the resignation of the president of Bear Stearns. The company said on Friday that fixed income markets were going through their roughest patch in over 20 years.
European equities posted losses on Monday after falls in Asia overnight, while government bonds were a touch lower after rising early. Broad-based dollar selling in currency markets was accompanied by unwinding of some carry trades, where investors sell low-yielding currencies for riskier, higher-yielding units. The yen and Swiss franc rallied. Only sterling bucked the weaker dollar trend, as a technical break higher on the euro/sterling cross prompted broader selling of the pound.
At 0945 GMT the dollar index was flat on the day at 80.12, having earlier traded as low as 79.957, according to Reuters data. The dollar pared some of its losses against the yen to stand 0.1 percent lower on the day at 117.92 yen, having hit a earlier four-month low around 117.20 yen.
The euro was up 0.3 percent at $1.3815, while the dollar was down 0.4 percent against the Swiss franc at 1.1864, having earlier fallen to 1.1820 francs, a level not seen since April 2005. Sterling was down 0.4 percent at $2.0307, with selling prompted by the euro hitting a two-month peak of 68.05 pence.
While credit market jitters are the dominant drivers of financial markets, the Federal Reserve's policy meeting on Tuesday will be closely watched for the accompanying statement. The Fed is widely expected to leave rates on hold at 5.25 percent. Analysts also generally expect it to reiterate that inflation remains its primary concern, but also to give a nod to the recent financial market volatility.