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The dollar edged lower on Wednesday, extending sharp falls from the previous day, as slightly higher European shares bolstered risk demand and kept the US currency near the year's low against a currency basket.
Renewed questions over the dollar's long-term status as the world's reserve currency, investors moving out of dollars into other assets such as gold, and options-related euro buying had fuelled broad-based dollar selling on Tuesday.
By 1059 GMT, the euro was a touch higher on the day at the key $1.4500 level, having climbed to the day's high of $1.4518 in early trade. The euro held near the year's high of $1.4535 hit on Tuesday. Against the yen, the euro traded 0.2 percent higher at 134.04 yen, having risen as high as 134.18 yen in earlier trade, its highest in nearly two weeks.
"Risk-loving currencies continue to enjoy widespread support even as doubts linger over the health of the global economy," said Daragh Maher, deputy head of FX strategy at Calyon. The dollar was slightly higher against the yen at 92.47 yen.
The US currency was within sight of some key support levels, including a July low of 91.73 yen, and $1.4550 and beyond against the euro. Options traders said option triggers were set at $1.4550 while chart targets were seen at $1.4620, a 61.8 percent Fibonacci retracement of its fall from above $1.60 in July 2008 to its October low near $1.2330.
UBS analysts cut forecasts for the dollar on "equity markets continuing to do well in the short term and US investors still continuing to diversify portfolios into overseas markets." In a note, they raised their 1-month euro/dollar forecast to $1.45 from $1.40 and 3-month forecast to $1.35 from $1.30.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was flat at 77.300, near a one-year low of 77.047 hit on Tuesday. The Australian dollar hit a one-year peak of $0.8662 and touched its highest in almost a month around 80.00 yen, although softer-than-expected retail sales took the wind out of its sails, pushing the Australian currency down 0.2 percent on the day to $0.8594.
The New Zealand dollar was last down 0.1 percent at $0.6943 after hitting a one-year high of $0.6993. Its peak comes ahead of a Reserve Bank of New Zealand meeting on Thursday, with expectations it will repeat that it wants to keep rates low well into 2010.

Copyright Reuters, 2009

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