* Singapore widens trading band for Singapore dollar
* Euro rises above $1.4100, highest in more than 8 months
* Aussie flirts with parity, dollar index hits 2010 low (Updates prices, adds comment, details)
By Wanfeng Zhou
NEW YORK, Oct 14 (Reuters) - The U.S. dollar fell to a 2010 low against a basket of currencies on Thursday after Singapore let its currency strengthen, but analysts saw increasing chances of a dollar rebound with negative sentiment so high.
The Australian dollar, which boasts the highest yield among major currencies, soared to its strongest level since the currency was floated in 1983 to US$0.9994, as investors dumped the U.S. currency on expectations the Federal Reserve would again start printing money next month.
Singapore's central bank widened the currency trading band in which it maintains the Singapore dollar, propelling the currency to a record high. Singapore is suffering from rising inflation and the move was seen as a tightening of policy - the opposite of what the U.S. Federal Reserve is expected to do. The Chinese yuan hit its highest closing level against the U.S. dollar since July 2005. See
"Singapore is often seen as a bellwether for the rest of the Asian currencies," said Firas Askari, head of FX trading at BMO Capital Markets in Toronto. "It opens the way for the region to have currency gains (against the U.S. dollar)."
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 a more than eight-month high of $1.4123 on trading platform EBS and faces near-term resistance at $1.4195, the Jan. 25 high. Traders said the euro still has room to go, with strong resistance not seen until $1.45. The pair was last at $1.4073, up 0.8 percent.
After the euro failed to crack $1.40 the previous session, the currency's moves caught some players by surprise as they had been expecting more consolidation. It triggered stops around $1.4030 and then $1.4050 in Asia and subsequently cracked the $1.41 handle in Europe.
The Aussie last traded at US$0.9951, up 0.5 percent, with traders saying option barriers at $1.0000 were slowing the rally. It has gained about 11 percent this year and is up more than 20 percent from a low in May.
The options market suggests the recent upward momentum in the Aussie dollar has further to run.
DOLLAR BOUNCE?
Dollar selling accelerated after the release of Federal Reserve meeting minutes this week showed policy makers were considering more measures to stimulate the economy, including adopting a price-level target or buying more bonds.
Investors will closely watch a speech by Fed Chairman Ben Bernanke on Friday, which could provide hints on what the central bank might do at its November 2-3 meeting.
Lee Hardman, currency economist at The Bank of Tokyo-Mitsubishi UFJ in London, said that judged by many metrics, dollar pessimism is now at "historically extreme levels signaling an elevated risk of a sharp correction higher for the dollar when dollar selling has reached a crescendo."
"At the end of the day, when everybody is on the boat and everybody is doing the same way, it doesn't take much to make the boat go the other way," BMO Capital's Askari said.
The dollar could see a rebound if the Fed announces asset purchases of less than $1 trillion after its meeting in November, which would disappoint some market participants hoping for a bigger move and ease concerns about a debasement of the U.S. currency.
Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto, said with the market already pricing in Fed easing, the dollar could rise after the Fed meeting in a "sell the rumor, buy the fact" reaction.
The dollar also hit the latest in a succession of record lows against the Swiss franc and slid below parity with the Canadian dollar, a level not seen since April.
The greenback fell to a 15-year low of 80.88 yen on EBS, despite wariness about Japanese intervention, and looked set to challenge its record low of 79.75 hit in April 1995.
While traders think the Bank of Japan could intervene at any moment to keep the yen in check, some market participants speculated that Tokyo may prefer to avoid intervention ahead of G20 meetings. (Additional reporting by Neal Armstrong in London; Editing by Andrew Hay)