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FOREX-Dollar declines on Fed rate outlook, U.S. data

Published 11/25/2009, 12:25 PM
Updated 11/25/2009, 12:27 PM

* U.S. jobless claims, spending data weigh on dollar

* FOMC minutes still having an impact

* Dollar/yen hits 10-mo low, euro/dollar at 15-mo high

* IMF, Dubai news help stem dollar selling (Updates prices, adds details)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 25 (Reuters) - The dollar slid to a fresh 15-month low against a basket of currencies on Wednesday as upbeat data on weekly jobless claims, consumer spending and new home sales bolstered the outlook for the U.S. economy.

Traders also pushed the dollar to a 10-month low against the yen, encouraged by Federal Reserve minutes released on Tuesday which showed U.S. policymakers saw the U.S. currency's recent decline as "orderly."

The minutes also affirmed expectations that U.S. interest rates will stay essentially at zero until around mid-2010.

The U.S. reports along with the Fed stance emboldened investors to seek riskier investments elsewhere for higher returns, boosting higher-yielding currencies such as the Australian dollar.

"The big thing today is dollar weakness against virtually every currency and that's a reflection in part of the FOMC's seeming comfort with the dollar's decline being relatively orderly," said Nick Bennenbroek, chief currency strategist at Wells Fargo in New York.

Movements in the options market were also consistent with the Fed's view on the dollar's "orderly" fall.

One-month euro/dollar implied volatility traded in the low 10 percent region on Wednesday. It hit 12.10 percent in early November.

Meanwhile, the generally positive U.S. data also stoked the market's risk appetite, said Kathy Lien, director of FX research at GFT in New York, prompting a dollar sell-off.

For most of the year, the dollar, which is typically viewed as a safe haven by investors, has tended to fall on upbeat economic news.

Lien specifically cited the decline in jobless claims, saying: "Jobs are the most important thing, so they're latching on to the fact that jobless claims were below 500,000, which means we could see a better non-farm payrolls report going forward."

SLOWING DOLLAR SELLING?

Further enhancing U.S. economic prospects were the increase in new home sales in October and rise in November consumer confidence.

The euro hit a 15-month high at $1.5096 according to Reuters data, and was last up 0.8 percent at $1.5088.

The ICE Futures dollar index, which measures its performance against a basket of six currencies, fell to 74.399, a 15-month low. It last traded at 74.517, down 0.7 percent.

Traders said dollar losses accelerated after Russia's central bank said it would use part of its reserves to purchase Canadian dollars, underlining moves by central banks to diversify out of the U.S. currency.

The dollar fell 1.0 percent to 87.69 yen after falling as low as 87.40, its lowest since January.

However, news that the International Monetary Fund will likely tell euro zone finance ministers next week that the euro is undervalued against the dollar, has halted the dollar's slide, traders said.

In addition, a report saying the government of Dubai will ask creditors of its two flagship firms -- Dubai World and property group Nakheel -- to a debt standstill, partly dented risk sentiment.

"The Dubai news was a surprise and helped halt the rally in the euro against the dollar as traders took some of their risky assets off the table," said Steven Butler, director of FX trading at Scotia Capital in Toronto.

The Australian dollar rallied 1 percent to US$0.9275 after bullish comments from Australia's central bank raised speculation of a rate hike next month.

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