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FOREX-Dollar drops on U.S rate outlook; stg gains

Published 10/15/2009, 06:47 AM
Updated 10/15/2009, 06:51 AM
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* Dollar falls to 14-month low vs euro, forex basket, Aussie

* Dollar hits 15-month lows vs Canada, NZ, Swiss franc

* Aussie boosted by RBA Stevens's comments on rates

* Dovish FOMC minutes weigh on dollar

By Catherine Bosley

LONDON, Oct 15 (Reuters) - The dollar fell to multi-month lows against the euro and commodity currencies on Thursday as policymaker comments reinforced views U.S. interest rates would stay lower for longer than those of other major countries.

Risk sentiment, which prompts investors to sell dollars, was lifted by forecast-beating earnings from JPMorgan and Intel Corp this week.

The results helped the Dow Jones industrial average pierce the 10,000 level for the first time in a year and sent European shares to a one-year high for a second straight session on Thursday.

"The mood through 10,000 in the Dow is significant. It does say that risk appetite is still on the table," Simon Derrick, head of currency research at Bank of New York Mellon.

"We're going to have a relaxed monetary policy for an extended period of time," he said of the latest Federal Open Market Committee meeting minutes released on Wednesday.

The minutes showed that some U.S. policymakers called for increasing asset purchases, underscoring views the Fed would not be raising rates any time soon.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.19 percent at 75.411, recovering from a 14-month low of 75.211 hit earlier in the day.

The greenback hit 14-month lows against the euro and the higher-yielding Australian dollar and a 15-month trough versus the New Zealand and Canada dollars.

Sterling surged more than 2 cents against the dollar from the day's lows to hit a three-week high above $1.62, and it also gained 1.8 percent on the day against the euro. The gains were prompted by short-covering after investors had boosted short sterling positions that helped push the pound to a five-month low earlier this week.

The pound's reversal also came as Bank of England policymaker Paul Fisher told the Financial Times he felt more confident the central bank's asset purchase programme was working.

The euro hit a 14-month high of $1.4967, according to Reuters data but later reversed some of those gains. At 1013 GMT, it was flat at $1.4916.

Data showing cheaper energy and food pulled down consumer prices in September against the previous year failed to move the foreign exchange market.

The market was still awaiting U.S. consumer price and jobless data for any further signs of recovery, as well as earnings from Goldman Sachs and Citigroup.

BNYM's Derrick said reports of Asian central banks intervening to keep their currencies from appreciating had not lifted the dollar, because the market anticipated some of the dollars would be converted into euros.

Hong Kong's central bank sold HK$1.5 billion ($200 million) to keep the Hong Kong dollar within its trading band.

Though the Fed was expected to keep rates low, Reserve Bank of Australia chief Glenn Stevens said local interest rates would need to move towards a more normal setting as economic recovery took hold, reinforcing the view rates would be hiked for a second consecutive month in November.

Steven's comments helped lift the Aussie, which rose as high as $0.9228 on the Reuters dealing system, its highest since August 2008.

"A combination of surging equities, a dovish FOMC and a hawkish RBA overnight is strongly positive for the highly risk-correlated Asian free-floating majors such as AUD and NZD and negative for the USD," Lena Komileva of Tullett Prebon wrote in a note.

The dollar's broad fall also extended to the Swiss franc, which hit a 15-month peak of 1.0117 franc.

The dollar rose a touch against the yen to 90.13 a yen. Japanese Finance Minister Hirohisa Fujii repeated countries must not compete in devaluing their currencies. (Additional reporting by Tamawa Desai; Editing by Victoria Main)

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