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FOREX-Dollar slips, euro supported before Eurogroup meet

Published 10/19/2009, 06:42 AM
Updated 10/19/2009, 06:45 AM
EUR/USD
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* Dollar struggles broadly, approaches 14-mth low vs euro

* Analysts say dollar weakness trend remains intact

* Market watches euro zone ministers' meet for FX comments

(Adds comment, details)

By Naomi Tajitsu

LONDON, Oct 19 (Reuters) - The dollar slipped broadly on Monday, approaching a 14-month low against the euro as the U.S. currency remained under selling pressure on expectations U.S. interest rates will stay low for months to come.

The euro dangled just below the psychologically important $1.50 level before a euro zone finance ministers' meeting later in the day, which market participants will watch for any comments on strength in the single currency.

Persistent concerns that the U.S Federal Reserve will keep rates pinned near zero until well into 2010 and the possibility the dollar will gradually lose its top reserve currency status have contributed to broad dollar weakness, boosting the euro.

"The trend clearly is for a weaker dollar due to a lack of interest rate support for the U.S. currency, the U.S. budget deficit and of reserve bank diversification flows into other currencies, like the euro," said Marcus Hettinger, global currency strategist at Credit Suisse in Zurich.

Markets awaited more third-quarter earnings results from U.S. firms later in the day, including Apple Inc and Texas Instruments, for evidence of U.S. corporate health and the strength of economic recovery.

The dollar recovered slightly on Friday from earlier falls after a large quarterly loss at Bank of America helped to dull investor demand for higher-yielding currencies, which have benefited this year as investor confidence has picked up.

By 0928 GMT, the euro traded 0.2 percent higher at $1.4935, having touched the day's high around $1.4950 in early European trade. Late last week, the single currency rose to $1.4967, its strongest since August 2008.

On a trade-weighed basis, the euro jumped to 118.82 on Friday, close to historic highs, while the dollar was 0.1 percent lower at 75.499, while the U.S. currency slipped 0.3 percent against the yen to 90.65 yen.

The Australian dollar traded near a 14-month peak after a Reserve Bank of Australia official said a return to normal monetary policy was appropriate. The RBA raised rates to 3.25 percent this month, the first major central bank to do so.

STRONG EURO COMMENTS?

Traders were on the lookout for possible remarks on euro strength and dollar weakness at a gathering of euro zone finance officials in Luxembourg later in the day, although analysts said the group was unlikely to significantly talk down the euro.

The euro has appreciated nearly 7 percent against the dollar so far this year.

Eurogroup Chairman Jean-Claude Juncker said on Friday a continued euro rise may slow Europe's economic recovery, but European Central Bank President Jean-Claude Trichet has repeatedly supported Washington's stance favouring a strong dollar.

The latest data from the Commodity Futures Trading Commission shows a fall in net long positions in the euro and the yen, and decreasing short dollar positions, which analysts said indicated that the pace of gains in the euro and yen against the dollar may be stalling.

"It seems more likely that EUR/USD will take a breather in particular as the pair had been unable to breach the important psychological level at $1.4965 last week," Commerzbank analysts said in a research note.

But they added: "It would however be premature to assume the IMM data suggested an imminent recovery of the dollar," arguing that a sustained recovery in the U.S. currency would only start when markets begin pricing in future Fed rate rises.

(Editing by Nigel Stephenson)

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