FOREX-Euro hits 1-month high vs dollar on oil, rates
TOKYO, May 22 (Reuters) - The euro hit a one-month high against the dollar on Thursday after the Federal Reserve cut its 2008 growth forecast and crude oil's surge to fresh record highs fuelled fears of the U.S. economy falling into stagflation.
The dollar, as well as the euro and other high-yielding currencies, also took a hit against the yen as global stock markets tumbled on soaring oil prices, prompting risk aversion among investors and unwinding of carry trades.
"With the Dow stock average falling sharply for two days in a row, investors have felt reluctant to take risks," said a trader at a Japanese bank.
He said that now is the time for investors to buy back the yen after they used the low-yielding currency to pick up high yielders such as the New Zealand dollar.
Although minutes of the Fed's April 29-30 policy meeting, that landed on Wednesday, highlighted worries about U.S. inflation and signaled more interest rate cuts were unlikely, it was insufficient to halt the dollar's slide.
After crude oil climbed in the previous session, oil extended gains on Thursday to rise above $135 CLc1 for the first time.
The U.S. dollar dipped 0.2 percent to a one-week low of 102.78 yen JPY= on electronic trading platform EBS, extending falls below 102.97 yen touched overnight.
The euro rose as far as $1.5802 EUR= on EBS, its highest since April and closing in on a record peak above $1.60 hit last month.
The euro also benefited against the dollar from surprisingly strong German data on Wednesday that added to expectations for an interest rate hike in euro zone.
The single European currency fell 0.2 percent versus the yen, changing hands at 162.46 yen EURJPY=, with investors expecting it to trade between 160.80 and 163.10 yen.
Besides crude oil and stock prices, investors are focusing on an upcoming U.S. report on existing home sales due out on Friday for clues about the dollar's direction.
"I see the dollar's support at 102.50 yen. But if the existing home sales data is weak, the dollar may break below that level and head towards 101.50-80 yen," said the trader at the Japanese bank.
