The US dollar fell broadly on Thursday and the euro soared to a two-month high above $1.29 as soft inflation and manufacturing data added to concerns about the strength of the US economy. US producer prices declined for a third straight month, the Labour Department reported.
The data came just a day after minutes of the Federal Reserve's latest meeting revealed that policy makers think they may need to do more to boost the economy if a sputtering recovery slows any further. The news helped push the euro to its highest against the dollar since May. The single currency, which slid below $1.19 in June on euro-zone debt trouble, has since risen more than 8 percent after smooth government debt auctions in Greece, Portugal and Spain eased concerns.
Weak reports on New York and mid-Atlantic factory activity also hurt the dollar, as did Wednesday's data showing retail sales fell for a second straight month. The data "is going to give traders further reason to dump the dollar as the risk shifts from Europe to the United States," said Kathy Lien, director of FX research at GFT Forex in New York. "Overall, US fundamentals are making the US less attractive to investors."
In late afternoon trading, the euro rose 1.4 percent to $1.2913, marking its best day in two weeks. Traders said efforts to cover bets against the euro that had built up in recent months have accelerated its rise, as did demand for overnight euro call options with strikes at $1.2825, $1.2835 and $1.2855.
Positioning and technical considerations suggest "a move toward $1.30 is realistic," said Derek Halpenny, head of Europe currency research at BTM/UFJ. The dollar also fell against other currencies, declining 1 percent to 87.54 yen and hitting a 5-1/2-month low against the Swiss franc at 1.0401 francs. Sterling rose more than 1 percent to $1.5443. The dollar index, which measures the greenback against six major currencies, hit a two-month low and has given back more than a third of its rally since last November.
It was last down 1.1 percent at 82.457. Citing the weaker US growth outlook, Goldman Sachs forecasts the euro to trade at $1.22 in three months' time, rather than $1.15, as it predicted in June. Its six- and 12-month forecasts are $1.35 and $1.38, respectively, compared with $1.15 and $1.25 a month ago. But BNP Paribas strategist Sebastien Galy attributed the move to frenzied short-covering on the euro and said a flat US yield curve was encouraging Japanese investors to repatriate profits, thus boosting the yen.
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