Dollar hits new lows

The dollar tumbled to record lows against the euro on Wednesday after comments by a Chinese official stoked fears the central bank of the world's fourth largest economy would reduce its holdings of US assets. The dollar's decline was broad, also taking it to all-time lows against a basket of major currencies, as sentiment further darkened after General Motors posted its biggest quarterly loss ever.
That loss, coupled with warnings of potential credit-related writedowns from major financial institutions, kept alive expectations that the Federal Reserve could cut interest rates again next month.
The euro raced to an all-time high of $1.4730, according to Reuters data, before retreating to $1.4665, still up 0.8 percent against the dollar on the day. The next big euro move could hinge on European Central Bank President Jean-Claude Trichet's news conference on Thursday, following the bank's monetary policy meeting, which is widely expected to hold the ECB benchmark interest rate at 4 percent.
Any hawkish signal from Trichet hinting at rate rises down the road are seen spurring a renewed rally of the euro. Any hint of concern over the euro surge can send the currency substantially downwards, at least in short-term trading.
But the broader trend was for the euro to hit $1.50 one way or another, one factor being that financial markets saw that no ECB or US Treasury officials were speaking out to "jawbone" down the euro and reverse dollar weakness, McCarthy said.
The euro jumped nearly 2 cents to its peak early on Wednesday soon after a Chinese central banker said the dollar was losing its major global currency status, and a top lawmaker said China should balance the make-up of its $1.43 trillion foreign reserves to take advantage of appreciating currencies.
Another major gainer was the British pound ahead of Thursday's Bank of England monetary policy committee meeting expected to keep interest rates at a six-year high.
Sterling jumped Wednesday to a 26-year high of 2.1071. It last traded at $2.1045, up 0.8 percent on the day. The prime driver of dollar weakness this year is the divergent paths of interest rate policy in the United States and Europe. Since September, the Fed has cut benchmark rates by three-quarters of a percentage point to 4.5 percent, while the ECB and BoE have held rates steady after hiking them earlier in the year.
Higher interest rates are a magnet for inflows into higher-yielding deposits, favouring high-rate currencies. On Wednesday, the Reserve Bank of Australia raised rates by a quarter-percentage point to an 11-year high of 6.75 percent.
That sent the Australian dollar to a 23-year high of US $0.9401. It last traded at US $0.9322, up 0.4 percent. Against the yen, the dollar fell 1.5 percent to 112.95. The dollar index, which measures the dollar's value against a basket of six currencies, touched a record low of 75.077, down around 10 percent since the start of 2007. It last traded down 0.8 percent at 75.420.