Dollar sinks in London

The US dollar index hit the year's low on Thursday while the Australian dollar flirted with parity after Singapore widened its currency's trading band, piling more pressure on the struggling greenback. The Australian dollar, which boasts the highest yield among major currencies, soared to a 28-year peak at $0.9994 as investors continued to dump the US dollar on expectations the Federal Reserve would again start printing money next month.
With interest rates at record lows in developed markets, yield-hungry investors are piling cash into emerging markets. The tide of money is rising ahead of an anticipated second round of quantitative easing by the Fed. "Effectively the Singapore move is a tightening of policy and it clearly shows Asian economies are at the opposite end of the spectrum compared to the spare capacity in the US economy," said Chris Turner, head of FX strategy at ING.
The dollar index, which tumbled 1 percent to its weakest since December at 76.259, is on course for a test of trendline support at 75.95, with its November low of 74.17 then not far away. The 75.95 target is the trendline from two major lows in July 2008 and in November 2009. The euro surged to an eight-month high above $1.4100 in European dealing and faces resistance at $1.4195, the January 25 high. With key levels having been broken in most major currency pairs, investors focused on the Australian dollar's assault on parity.
"The Aussie rally is being driven by strength in the Australian economy together with supply and a general depreciation of US dollars. There are barriers at parity but it's difficult to see the trend changing," said Lauren Rosborough, senior currency strategist at Westpac in London.
The Aussie eased back to $0.9960 with traders saying option barriers at $1.0000 were slowing the rally. It has gained more than 11 percent this year and is up around 24 percent from a low in May. After failing to crack $1.40 the previous session, the euro's move caught some players who had been expecting more consolidation by surprise as it triggered stops around $1.4030 and then $1.4050 in Asia and subsequently cracked the $1.41 handle in Europe. By mid-morning it had eased back to $1.4075. The US dollar fell against the Singapore currency, touching a record low of S$1.2888. The greenback fell to a 15-year low of 80.88 yen on EBS, despite wariness about Japanese intervention, and nearing its record low of 79.75 hit in April 1995.