The dollar tumbled to 14-month lows on Wednesday, hurt by persistent expectations for low US interest rates, investor appetite for commodity currencies and expectations that Japan at least was not ready to break its fall. It skidded to its lowest levels since August last year against the euro, the Australian dollar and a basket of six major currencies.
But its steepest fall on the day came against the yen after a senior Japanese official signalled intervention was undesirable. Naoki Minezaki, one of Finance Minister Hirohisa Fujii's deputies, told Reuters that Japan should not step into the foreign exchange market just because the yen rises, fuelling market suspicions that Tokyo is not close to intervening to stem yen gains.
Already under pressure, the dollar fell below 89.00 yen towards a recent eight-month low at 88.01 yen, shedding 0.9 percent on the day and helping the yen rise across the board. Buoyant commodity prices, with gold rising to its latest record, and a rise in S&P futures added to investor appetite for pro-growth trades, with the Australian dollar gaining and the Canadian dollar nearing a 14-month high.
Dollar selling has rotated against European and Asian currencies in the past few weeks, with talk among traders that it, along with sterling, is being used to fund investment in currencies with prospects of higher interest rates and growth. The dollar index, a measure of the greenback's performance against six major currencies, fell to 75.551, its lowest point since August 2008.
"The dollar should weaken and 75 on the index is a very important level," said Robert Rennie, chief currency strategist at Westpac. "For the index to be there, the euro should test $1.50 and I guess the momentum is very much there for that to happen."
The euro gained 0.2 percent to $1.4891, its highest since August last year. The Australian dollar rose 0.5 percent to $0.9145, its latest 14-month peak. Federal Reserve Vice Chairman Donald Kohn said on Tuesday the US economy would not snap back quickly from its deep recession, fuelling market expectations for continued low US rates which have kept pressure on the dollar.
The dollar was down 0.8 percent on the day at 88.99 yen, heading back towards last week's eight-month low of 88.01 yen and towards January's 13-year low at 87.10 yen. It has shed about 9 percent against the yen since early August. Traders said institutional investors such as life insurers had been selling dollar/yen and yen crosses, while hedge funds sold the dollar after it failed to hold above 90.00 yen.
The yen has not been as strong against the likes of the euro or the Australian dollar this year, although the euro fell 0.6 percent on Wednesday to 132.50 yen. The Australian dollar, which has been a favoured buy against the low yielding Japanese currency, shed 0.2 percent to 81.32 yen, although it was still holding close to its high for the year at 82.00 yen.
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