The US dollar saw its biggest one day fall against the euro in two months on Monday as strong Chinese economic data boosted investor confidence in the global economic recovery, encouraging money flows into riskier currencies. In addition, the new bank capital requirements, announced by the Basel Committee of regulators on Sunday, were not as onerous as expected, leaving investors in an optimistic mood.
New data Chinese data showed factories ramped up production last month and money growth beat expectations, backing the view that the markets outlook had grown too gloomy. The euro rose about 1.6 pct to around $1.2892, its biggest daily gain since July 1, before closing around $1.2873.
The high-yielding Australian dollar reached a five-month peak of $0.9362. Australia is a top supplier of raw materials for China. The euro also rose 0.9 percent to 107.67 yen as the euro got a boost after the European Commission said it expects the eurozone economy to grow almost twice as fast in 2010 as previously expected. Analysts said a target for the euro was $1.2920 which has proved the top of the range for the summer on several occasions, but longer-term worries about the health of the eurozone banking sector and eurozone government debt may limit euro gains.
Similarly, concerns about anaemic US economic growth are keeping demand up for safe haven currencies like the Swiss franc. The dollar fell 1.2 percent to 1.0074 Swiss francs on Monday. The US dollar index, measuring the greenback's performance against six major currencies, was last down 1.0 percent at 81.834.
Further falls in the index could drive it to re-test lows seen earlier this month around 81.58/50 and even potentially test the 80.745 August low over coming weeks, said BNP Paribas in a note to clients. The dollar fell 0.7 percent to 83.61 yen, still near a 15-year low around 83.34 yen on electronic trading platform EBS. The low recorded by Reuters data is 83.32.
That kept investors on alert to see whether Japanese authorities would intervene to weaken the yen ahead of a ruling party leadership vote on Tuesday. Traders said bids from Japanese importers around 83.50-80 yen were offset by exporter offers reported above 84.20 yen.
Were Japan to intervene against the yen, it is expected to act alone, with US authorities more focused on persuading China to allow more yuan appreciation. US Treasury Secretary Timothy Geithner was due to discuss China's exchange rate practices before Congress this week. In remarks published in the Wall Street Journal on Monday, he said China has made "very, very little" progress on letting the exchange rate reflect market forces.
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