The US dollar hovered above a three-month low against a basket of major currencies on Thursday after the US Federal Reserve chief stopped short of offering a clear hint of more bond buying. The dollar index against a basket of currencies stood at 78.72, above a three-month low of 78.095 hit on Wednesday, while the euro traded at $1.3341, up slightly in Asia but hardly recovered from a loss of more than 1 percent from a high of $1.3486 on EBS on Wednesday.
The euro and the Australian dollar nursed heavy losses as investors took profits from the recent rally in riskier assets after a long-awaited massive fund injection from the European Central Bank to banks. Still, Federal Reserve Chairman Ben Bernanke's testimony on Wednesday did little to change a broad consensus in the market that he is ready to pull the trigger on further easing on any signs of economic weakness, shifting market focus on upcoming US data, including manufacturing data later in the day.
"It's not like Bernanke has dropped the idea of QE3. Yesterday we saw a bit of profit-taking but I don't think the dollar's downtrend is over," said a trader at a Japanese bank. A weak reading in the ISM manufacturing index could rekindle speculation that the Fed could start a new round of quantitative easing before its current "operation twist" ends in June.
The euro has immediate support at $1.3321, the February 9 high, and $1.3293, the 100-day moving average. As the dollar broadly rebounds, it edged near a nine-month high against the battered Japanese yen, which has been declining sharply after the Bank of Japan's easing last month. The dollar fetched 81.05 yen, down slightly on the day on profit-taking but not far from nine-month high of 81.661 yen hit last week.
Many market players say the US currency could break above that high, even if the pace of its rally may slow after a whopping 6.5 percent gain last month, as the yen could remain under pressure from the BoJ, which set an inflation goal last month. The Australian dollar edged up 0.2 percent in Asia to $1.0755, helped by robust Chinese PMI data, though it came only after it had tumbled more than a full cent to $1.0715 from a six-month peak of $1.0857 hit on Wednesday.
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