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CURRENCIES: Dollar Slumps, Euro Back Above $1.50

By William L. Watts

The dollar fell versus major rivals Wednesday, allowing the euro to again fetch more than $1.50, as economic sentiment was helped by overall upbeat U.S. economic data after the U.S. Federal Reserve showed no qualms about the U.S. unit's decline.

The dollar index (DXY), a measure of the U.S. unit against a trade-weighted basket of major rivals, recently fell 0.5% to 74.667.

The euro traded at $1.5043, up from $1.4962 in North American trade late Tuesday.

The dollar also fell to 87.71 yen versus the Japanese currency, down from 88.49 yen. The dollar notched a 10-month low versus the Japanese unit at 87.37 yen, according to FactSet.

"We continue to believe that the U.S. dollar could fall another 5 to 7% over the next few months," said Kathy Lien, director of currency research at Global Forex Trading, in emailed comments.

Upbeat economic news and expectations that the Fed will keep interest rates at ultra-low levels have helped pressure the dollar to 14-month lows.

When upbeat news encourages risk-taking, traders borrow dollars nearly for free to invest in higher-yielding currencies or assets, such as stocks and commodities, a so-called carry trade.

"The big surprise this morning was the sharp decline in jobless claims," GFT's Lien said.

The U.S. Labor Department reported weekly jobless claims fell under 500,000 for the first time in nearly a year. Separately, consumer spending rose 0.6% in October, as expected, while real disposable income rose 0.2%, more than the 0.1% gain expected.

Also, a gauge of U.S. consumer sentiment was revised to a higher-than-expected level, while sales of new homes jumped in October. On a less upbeat note, orders for durable goods fell 0.6%, and excluding transportation, they fell 1.3%. Economists surveyed by MarketWatch expected orders to rise 0.5% overall, and a gain of 0.4% excluding transportation.

In Asian trade, upbeat economic remarks by the Reserve Bank of Australia's deputy chief helped stoke risk appetite, while the minutes of the Fed's Nov. 3-4 meeting released Tuesday "seemed to tacitly endorse dollar weakness as long as it's orderly," said Daragh Maher, currency strategist at Calyon.

The broadly weaker greenback also broke parity with the Swiss franc for the first time since July 2008, dipping to a low of 0.9992 franc. In recent action, the dollar fetched 1.003 francs, a loss of 0.6% on the day.

Remarks by Reserve Bank of Australia Deputy Gov. Ric Battellino contributed to rising sentiment about global economic prospects, analysts said.

"With the economy having only recently entered a new upswing, it is reasonable to assume that we will see this growth extended for a few more years yet," Battellino told an Australian housing conference, according to Dow Jones Newswires.

That contributed to expectations the RBA will lift rates again in December, boosting the Australian dollar while also lifting overall global risk appetite, analysts said, contributing to dollar weakness.

Minutes of the Federal Reserve's Nov. 3-4 meeting released Tuesday also kept pressure on the dollar, strategists said, reinforcing expectations U.S. interest rate will remain low for some time.

The Australian dollar rose 0.6% to trade at 92.57 U.S. cents. The U.S. unit declined 0.2% versus the New Zealand dollar to trade at NZ$1.3740.

The British pound rose 0.4% to trade at $1.6652 versus the dollar.

Sterling had little lasting reaction to an expected upward revision to third-quarter British gross-domestic-product data. GDP shrank by 0.3% compared with the previous quarter and falling 5.1% compared with the year-earlier period.

The Office for National Statistics had previously estimated a quarterly fall of 0.4% and an annual decline of 5.2%.

The dollar's weakness helped fuel a rise in gold futures, which rose in electronic trading on Globex. The December contract tapped a record above $1,182, buoyed by investment demand and a report that India might be buying more gold from the International Monetary Fund.

Vietnam's currency took center stage in Asian trade as the country's central bank said it would again devalue the dong.

Vietnam's central bank said Wednesday it will devalue its currency by 5.4%, effective Thursday, resetting the dollar-exchange rate to 17,961 dong from its current level of 17,034 dong.

The move -- Vietnam's third devaluation in two years -- is an apparent attempt to protect its foreign reserves. The State Bank of Vietnam will also narrow the trading band of the dollar against the dong to 3% from 5%.

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(END) Dow Jones Newswires

November 25, 2009 11:37 ET (16:37 GMT)


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