The US dollar was mostly lower on Monday as investors shunned it for higher-yielding currencies and assets in the belief US corporate earnings, especially at some top banks, will exceed expectations. Some investors sell the dollar against other currencies when economic optimism grows and buy assets like stocks and commodities instead.
Hopes for stronger earnings, and confidence in a global recovery pushed US crude oil higher, and shares on Wall Street chalked up their sixth straight day of gains. However, volume was light and many traders took the day off with the US government closed for Columbus Day and Canada out for Thanksgiving. Tokyo was also shuttered for a one-day holiday.
"It's a quiet start to the week given the holiday and the market is positioning for some of the financial earnings," said Joe Manimbo, a currency trader at Travelex Global Business Payments in Washington. Of particular interest will be results from J.P. Morgan Chase & Co and Goldman Sachs Group Inc slated for later this week.
The euro rose 0.4 percent to $1.4780 and 0.4 percent to 132.77 yen, while the dollar fell 0.5 percent to 1.0266 Swiss francs. The dollar was little changed at 89.83 yen but sterling hit a five-month low at $1.5729 after a report said UK interest rates would stay at rock-bottom levels until 2011 and not hit 2 percent until 2014. The pound was last down 0.2 percent at $1.5798.
The dollar got a boost on Friday and bond yields rose after Federal Reserve Chairman Ben Bernanke reiterated that the central bank will be ready to raise interest rates and withdraw money from the system once an economic recovery takes hold. Hopes the Fed might hike interest rates sooner than expected faded on Monday, with the euro briefly moving back above $1.48, within striking distance of the 2009 high around $1.4842.
"As investors rethink the Bernanke comments, they ponder what might cause an acceleration of (interest rate increases) from the Fed and realise that there is nothing to do so," said Andrew Wilkinson, senior analyst at Interactive Brokers Group in Greenwich, Connecticut.
He said that means the euro should retest annual highs on its way to $1.50, a level not seen since August of 2008. The same appears to hold for the Canadian dollar, which hit a fresh 14-month high against the greenback on Monday. The US dollar was last down 0.7 percent at C$1.0351.
Some investors fear record US deficits and the risk of inflation posed by super-loose monetary and fiscal policy will undermine the dollar and push up long-term interest rates. That also worries foreign central banks who fear that their own economies will suffer if their currencies get too strong against the US dollar and choke off exports. St. Louis Federal Reserve President James Bullard added to the debate on Sunday, saying medium-term inflation risks in the US economy could be higher than thought.
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