The US dollar on Tuesday sank to its lowest level against the euro this year as volume returned after a summer lull and traders sold the currency amid a rosy global outlook. Analysts said the dollar could resume seasonal declines as liquidity increases after a brief period in which the greenback rose following upbeat economic indicators.
The US currency, seen as a safe haven in times of uncertainty and financial distress, tends to fall when investors' risk appetite increases. Further weighing on the dollar were renewed concerns about the status of the greenback as the world's reserve currency sparked by a United Nations agency report on Monday and news out of China expressing concern about printing money to fund Treasury purchases.
"The dollar has been beaten down by several news headlines - with the UN report and the China news," said Jacob Oubina, currency strategist, at Forex.com in Bedminster, New Jersey.
Britain's Telegraph newspaper over the weekend reported that China was concerned about the Federal Reserve's policy of printing money to buy Treasury debt, which could threaten to set off a serious decline of the dollar and compel China to redesign its foreign reserves policy. The report quoted a top member of the Communist hierarchy, Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive.
"All these things are dollar-negative. This is a reminder that the US dollar is poised for some weakness in the months ahead," Oubina said. In addition, the euro's push above $1.45 should pave the way for significant gains. The euro rose as high as $1.4535, the highest since December 2008.
In late afternoon trading, the euro last traded 1.2 percent higher at $1.4508. HSBC said in a research note "the increased participation and liquidity (as summer trading ended) would theoretically increase the chances that the latest rise in euro/dollar can be extended."
HSBC said the euro's next upside target is $1.4720, a breach of which should propel the unit to its highest in nearly a year. Against a basket of major currencies, the dollar slumped to its lowest in nearly a year. The ICE Futures' dollar index, which measures the value of the greenback against a basket of six currencies, fell to 77.047 - its lowest since late September 2008. The index was last at 77.3064, down 0.9 percent.
Over the past two decades, September has been the second weakest month of the year for the dollar against the euro, with December being the weakest, according to data compiled by RBS Global Banking and Markets. Gold earlier jumped to $1,007.45 an ounce, its highest since March 2008. It was last trading at $993.70. The yellow metal tends to track moves in the US dollar inversely, as it can be bought as an alternative asset to the greenback. It is also cheaper for non-US investors to buy gold if the dollar falls.
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