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FOREX: Dollar struggles as demand for risk continues

Published 11/04/2010, 08:26 PM
Updated 11/04/2010, 08:28 PM
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* Euro hits 10-month high at $1.4283 in Fed aftermath

* Dollar index at 11-month lows after support gives way

* Dollar/yen under renewed pressure, BOJ meeting awaited

By Charlotte Cooper

TOKYO, Nov 5 (Reuters) - The dollar struggled near fresh lows on Friday after breaking down to a new 2010 trough against a basket of currencies as a Federal Reserve decision this week to buy government bonds renewed investor appetite for risk assets.

The dollar index hit an 11-month low on Thursday in the aftermath of the Fed decision, opening the way for a possible test of its 2009 low of 74.17, and the euro was holding above $1.4200 after soaring as far as $1.4283, its strongest since late January.

The dollar was also under renewed pressure against the yen, trading one yen above its 1995 post-war record low of 79.75.

The Bank of Japan concludes a policy meeting on Friday and is expected to hold off on further monetary easing, as the Fed's decision did not immediately trigger sharp yen gains, but it may discuss the damage of sustained yen strength to the economy.

The market will pay close attention to U.S. monthly jobs data later in the day, after the Fed's asset-buying decision was accompanied by a pledge to review the programme regularly "in light of incoming information" and adjust it to better foster employment and price stability.

Economists in a Reuters poll forecast 60,000 jobs were created in October after 95,000 were lost in September. Brian Kim at UBS said numbers broadly in line with its forecast for a rise in nonfarm payrolls of 70,000 were unlikely to help the dollar at the moment.

"But if the data surprises strongly on the upside, the dollar could temporarily strengthen and both risk-seeking positions and dollar shorts could face some profit taking into the weekend," he wrote in a client note.

Dollar/yen stood at 80.75 yen, little changed from late New York levels but well within range of its latest 15-year low of 80.21 set on Monday and perilously close to the record low.

The Fed's commitment on Wednesday to open-ended purchases of Treasuries, implying low funding costs, has renewed focus on the dollar as a funding currency for purchases in commodities, emerging markets and higher-yielding currencies.

Highlighting that shift in sentiment, gold rose to record high on Friday and palladium to a nine-year high.

The euro climbed 0.2 percent to $1.4230 in early Friday action. Traders report options barriers at $1.43 and bids around $1.4200-$1.4220.

Technical strategists also flagged as next targets the $1.4370 area, which is the 78.4 retracement of the euro's fall from November to June, and then $1.4580, the euro's January high.

In Australia, the central bank gives a statement on monetary policy, after it raised rates by 25 basis points this week to 4.75 percent, and is expected to be upbeat on the economy.

The Australian dollar was flat at $1.0145 after climbing as far as $1.0177, a 28-year peak. (Editing by Joseph Radford)

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