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US dollar tumbles to six-month low against euro

Posted by smeddum on October 3, 2010

Channel News Asia

2nd October, 2010

NEW YORK: The US dollar fell to its lowest level against the euro in more than six months, suffering from speculation the Federal Reserve will step up stimulus spending to sustain a US recovery.

The euro was trading at 1.3787 dollars around 2100 GMT, up sharply from 1.3634 dollars late Thursday in New York.

The common European currency earlier had surged to 1.3791 dollars, its highest reading since March 17.

The dollar also weakened against the Japanese currency, to 83.25 yen from 83.46 on Thursday.

“The dollar is finishing the week – and starting the new month – under pressure virtually across the board,” said Vassili Serebriakov, currency strategist at Wells Fargo Bank.

“While the recent Fed talk does point to a divergence of opinion on the appropriate ways to stimulate the economy, there appears to be a general sense that the Fed feels the need to ‘do more’ unless data picks up notably.”

Speculation that the Fed is gearing up to print money to buy bonds in a bid to support the weak economic recovery gained further traction Friday from a speech by William Dudley, president of the Federal Reserve Bank of New York.

Dudley said further moves by the Fed were likely in view of the “wholly unsatisfactory” current levels of high unemployment and tepid inflation.

“Further action is likely to be warranted unless the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long,” he said.

Nomura Global Economics analysts noted Dudley expressed strong support for additional quantitative easing (QE) in his first public remarks in several weeks.

“The speech broke ground on a number fronts, including quantifying the size of potential QE, expressing support for a more explicit inflation target, and even surprising comments on price-level targeting. Overall the remarks made clear that President Dudley is strongly in favour of additional policy stimulus,” they said in a client note.

The dollar has faced strong selling pressure ever since the US central bank hinted last month at more such stimulus spending if the tepid US economic recovery cooled further.

Elsewhere on Friday, sterling hit a four-month low against the euro after news of weaker-than-expected British manufacturing activity.

In late New York trade, the pound rose to 1.5825 dollars from 1.5713 on Thursday.

The dollar fell to 0.9734 Swiss francs from 0.9825.

– AFP/de

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