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FOREX-Dollar falls broadly on dovish Fed comments

Published 11/23/2009, 03:52 AM
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* Dollar falls broadly on dovish comments from Fed's Bullard

* Dlr hits 6-week low vs yen; euro rises 0.8 percent vs dollar

* Euro zone PMI figures eyed at 0858 GMT

LONDON, Nov 23 (Reuters) - The dollar fell broadly on Monday after dovish comments from a U.S. Federal Reserve official added weight to expectations that U.S. monetary policy would stay ultra-loose for a prolonged period.

The U.S. currency fell to a six-week low against the yen and lost around three quarters of a percent against the euro. The moves were exacerbated by thin liquidity with Tokyo markets closed and ahead of Thursday's U.S. Thanksgiving holiday.

St. Louis Federal Reserve President James Bullard said on Sunday that the central bank should keep alive its mortgage-related asset purchase programme beyond a planned end date to help stimulate the economy.

Those remarks contrasted with comments on Friday from European Central Bank President Jean-Claude Trichet that banks risked becoming addicted to easy money. Trichet said he would make sure extraordinary liquidity measures would be phased out in a timely and gradual fashion.

"Everyone is looking to the major central banks to begin their exit strategies, so the market is very sensitive to any comments on liquidity," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"Better risk sentiment is also weighing on the dollar, with equities gaining and commodity prices higher," he added.

Expectations of prolonged low U.S. interest rates and signs of global economic recovery have kept the dollar in a steady decline since March.

The euro could garner support as provisional purchasing managers' indices on the euro zone manufacturing and services sector sectors due at 0858 GMT were expected to show a further improvement in activity.

Regional figures showed activity in the French private sector grew at its fastest pace in 37 months in November, though manufacturing activity growth slowed.

The equivalent figures for Germany showed German manufacturing activity expanded for the second month running.

At 0821 GMT, the euro was up 0.8 percent at $1.4971. Against a basket of currencies, the dollar dropped 0.7 percent to 75.113, off a Friday high of 75.879.

Against the yen, the dollar fell to a six-week low of 88.58 yen, according to Reuters data.

"The Fed is sounding like they mean it about keeping rates low for an extended period -- way into 2010 if not 2011," said a trader at an Australian bank.

"That just added to the dollar's offered tone and it doesn't take a lot of flow to move currencies when the market is so thin," he added, noting the absence of Tokyo for a holiday had made conditions illiquid.

Traders were also encouraged to dump dollars for perceived riskier currencies as European shares rose more than 1 percent, gold prices jumped to record highs and oil prices gained more than 1 percent.

The higher-yielding and commodity-linked Australian dollar rose 0.8 percent against the dollar to $0.9222 while the New Zealand dollar was up 0.8 percent at $0.7296

(Additional reporting by Wayne Cole in Sydney and Kevin Yao in Singapore, editing by Nigel Stephenson)

((jessica.mortimer@thomsonreuters.com; Tel: +44207 542 7817, Reuters Messaging: jessica.mortimer.reuters.com@reuters.net)

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