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FOREX-Dollar falls after APEC, risk demand rises

Published 11/16/2009, 08:19 AM
Updated 11/16/2009, 08:21 AM
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* Dollar slips, APEC offers limited FX direction

* U.S., China fail to agree on currency position

* Dollar index hovers near 15-month low

(Adds comment, detail)

By Naomi Tajitsu and Jamie McGeever

LONDON, Nov 16 (Reuters) - The dollar weakened on Monday as traders took a lack of agreement on currencies among Asian and U.S. leaders as a cue to sell the greenback, particularly against more freely floating currencies like the euro.

The dollar also came under selling pressure with European shares rising 1 percent and gold hitting a fresh record high, suggesting an increase in risk appetite.

The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation (APEC) forum in Singapore at the weekend, resulting in the omission of a reference to "market-oriented exchange rates" from the communique.

Analysts said traders took the removal of the currency reference from the statement as a green light to keep the dollar's downtrend intact on the view that U.S. interest rates will stay low as those in other countries eventually rise.

"Chinese currency policy is unchanged, which means that they'll still be forced to accumulate and swap more and more dollars for euros," said Neil Mellor, currency strategist at Bank of New York Mellon in London.

The disagreement between Washington and Beijing comes as U.S. President Barack Obama visits China this week. The yuan's peg to the dollar keeps the Chinese currency weak against its U.S. counterpart, and any yuan appreciation is seen weakening the dollar.

By 1245 GMT the dollar index, a measure of its value against six major currencies, was down 0.5 percent at 74.95, near a 15-month trough of 74.774 hit last week.

The euro was up 0.4 percent to $1.4975, just shy of its $1.4994 session high reached before a quasi-official entity sold ahead of the psychologically key $1.50 level, also a level where options are set to expire Monday.

The dollar slipped 0.3 percent against the yen to 89.47 yen .

Traders offered only a limited reaction to data showing Japan's economy grew at the fastest pace in more than two years in the third quarter.

Dollar/yen trading was hemmed in narrow ranges on Monday, but the market was on the lookout for yen outflows from Japanese investment trusts launching on Monday and Tuesday, as well as possible yen repatriation from U.S. Treasury coupon flows.

NET DOLLAR SHORTS INCREASE

The dollar has been battered in past months on speculation that U.S. rates will stay at virtually zero until well into next year, keeping the return on U.S. assets lower than those in other countries including Australia and Norway, where interest rates have already started rising.

Analysts expect the euro to climb above $1.50 in the near term, despite two failed attempts to make a sustained break above the level in the past month. A climb above $1.5064 -- last month's peak -- would mark its highest in 15 months.

Traders continue to bet on more weakness in the dollar, with data on speculator positioning shows net short positions in the U.S. currency rising against the euro, the yen and the Swiss franc last week.

"Despite the failure of euro/dollar to break meaningfully above $1.50, long euro positions have been extended -- albeit remaining well below the crowded levels seen in early October," analysts at Danske said in a research note.

With little in the way of economic data or events in the European session, analysts said the market would be watching U.S. retail sales due later in the day. A strong reading may boost risk demand and push the dollar lower, they said.

(Editing by Ruth Pitchford)

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