The dollar sagged to a record low against the euro and a basket of major currencies on Monday, pressured by expectations of a Federal Reserve interest rate cut this week and perhaps another reduction by the end of the year.
The weak dollar helped drive oil prices to a new record peak above $93 a barrel and sent gold to a 28-year high above $794 an ounce, boosting the Australian dollar to its highest levels in 23 years and the Canadian dollar to a 33-year peak.
The Fed is widely seen cutting rates by a quarter point to 4.5 percent on Wednesday, while expectations are building for a follow-up cut in December to limit economic damage from the housing market's downturn.
Buoyant equity markets, however, helped the dollar strengthen against the yen, as investors' hunt for yield drew them back into carry trades where low-yielding currencies are sold for units offering higher returns. "It's dollar plus carry," said Peter Frank, senior currency strategist at Societe General in London, referring to the two main themes of the day.
"We see the yen very weak too, even weaker than the dollar. The rest of the world looks like it's doing very, very well ... and a bullish global economy is negative for the dollar when the Fed is easing."
At 1140 GMT, the euro was up 0.1 percent on the day at $1.4413, having earlier traded at a new high of $1.4438, according to Reuters data, and taking its year-to-date gains to nearly 10 percent.
The dollar index, which tracks the greenback's progress versus a basket of six major currencies, was last down 0.15 percent at 76.917, having dipped to 76.777, the lowest in the index's more than 30 year history.
The dollar rallied half a percent against the yen to 114.75 yen as market players kept selling the Japanese currency as a source of cheap funds to buy higher-yielding currencies and assets in the risky carry trade.
The euro gained two thirds of a percent against the Japanese unit to 165.30 yen. The high-yielding Australian dollar vaulted as high as $0.9272, the highest since 1984, while against the Canadian dollar the greenback slid as low as C$0.9580, a 33-year low.
As far as euro/dollar is concerned, the next target is $1.45 followed by $1.4535, which traders say is the equivalent of the 1995 record low in dollar/Deutschemark. "There is no compelling reason yet for any turnaround in the dollar," said the head of FX sales at one bank in London, adding that the euro could reach $1.4535 in short order.
US data due this week include the first estimate of third quarter economic growth on Wednesday and October's non-farm payrolls report on Friday. "The data this week will do little to dissuade markets from the view that the Fed will cut rates further over coming months nor will it provide much support for the dollar, which appears set to test $1.45 against the euro over the coming days," Calyon said in a research note.
Meanwhile, Sweden's Riksbank is seen raising rates to 4.0 percent on Tuesday. Norges Bank also meets this week, but is not expected to tighten policy until December. The Bank of Japan, which meets on monetary policy on Wednesday, is widely expected to keep rates on hold at 0.5 percent for months yet.
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