Dollar falls on recovery hopes

A customer pays her lunch bill at the Other Side Cafe in Boston, Massachusetts October 1, 2009.

NEW YORK (Reuters) - The dollar fell to a 14-month low against a basket of currencies on Thursday as rising equities markets fueled demand for riskier assets at the expense of the safe-haven U.S. currency, while the Australian dollar rallied on strong jobs data.

The euro strengthened to a two-week high just below $1.48 after European Central Bank President Jean-Claude Trichet made comments about the U.S. currency which were not as forceful as some investors had expected.

On Wall Street U.S. stocks rose as a surprise profit from Alcoa Inc (AA.N) and reassuring monthly sales from major retailers fueled recovery hopes. Data showing U.S. new jobless claims hit a nine-month low last week added to the upbeat tone.

"It's just a continuous recovery play," said Fabian Eliasson, vice president of currency sales at Mizuho Corporate Bank in New York. "We're seeing good numbers all over the place."

The ICE Futures U.S. dollar index, a measure of the greenback against six major currencies, fell as low as 75.767, the lowest level since August, 2008. It was last down 0.9 percent at 75.775 .DXY.

Traders said for the index, 74.30 is a breakout level that would elicit further weakness in the dollar. A break of that level would target 71.30, followed by the index's all-time low around 70.70, set in March 2008.

The dollar was down 0.2 percent at 88.41 yen. Wednesday's eight-month low of 88.01 yen was the most immediate target and a break below would bring January's 13-year low of 87.10 yen into view as traders test how far and fast Japan's Ministry of Finance will let the yen strengthen.

Analysts said several central banks, including those from smaller emerging economies in Asia, have bought dollars to slow the currency's slide.

"It was reported that earlier this morning that Russia was one of at least six central banks buying dollars," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.

The Australian dollar jumped 1.8 percent to US$0.9074. Australian jobs data for September beat expectations for a fall, with 40,600 positions created instead, pushing the Aussie to a 14-month high against the U.S. currency as markets anticipated more interest rate hikes.

ECB TRICHET

The euro was up 0.6 percent at $1.4777, after hitting a session high of $1.4799, according to Reuters data, the highest level since late September.

Trichet, speaking after the ECB held interest rates steady at a record low of 1.0 percent, largely repeated his comments of last month, saying U.S. support for a strong dollar policy "is extremely important.

"It was actually what he didn't say that caused the market to buy the euro," said Matthew Strauss, senior currency strategist at RBC Capital Markets in Toronto.

"Before Trichet's briefing, there was chatter in the market that he may give more forceful comments on having a 'strong' dollar. But Trichet just gave the standard language so we saw some relief rally for the euro," he added.

Trichet also said the euro zone economy is stabilizing and will recover at a gradual pace. But he cautioned against hopes of a speedy recovery, saying that current interest rates were suitable for the economic situation.

Earlier, the Bank of England also left its official interest rate at a record low of 0.5 percent for the seventh month running and said it would keep in place its 175 billion pound program to buy assets from the market to increase liquidity.

Thursday marked the first anniversary of major central banks' surprise coordinated rate cut to bolster global confidence after the collapse of Lehman Brothers.