Dollar trades near recent lows
NEW YORK (Reuters) - The dollar held near a 15-year low against a basket of currencies on Friday and was on track for its biggest weekly decline in nearly a year as uncertainty persisted about the health of the U.S. economy.
The U.S. currency rebounded against the low-yielding yen as stocks climbed and investors took profits in the Japanese currency. However, fears about the future path of U.S. interest rates kept it near a record low against the euro.
Selling accelerated after the Federal Reserve's decision on Tuesday to cut key U.S. interest rates an aggressive half percentage point eroded the dollar's value further. But analysts said the greenback was due for a respite.
"The fact the dollar has come down so quickly and sharply leads you to expect a brief relief rally," said Andrew Bekoff, chief investment strategist at Printz Capital Management in Philadelphia. "But the trend is still lower for the dollar."
On Friday, the dollar index .DXY, which measures the greenback against six major currencies, fell to a fresh 15-year low at 78.380 and came within range of its all-time trough of 78.190 before recovering to trade flat on the day.
The index was down 1.3 percent on the week, its third straight weekly decline and biggest slide since November 2006.
In late afternoon trading in New York, the euro was a little less than 0.1 percent higher at $1.4080. Unexpectedly weak euro zone manufacturing data for September helped drag it from a record high of $1.4120 hit overnight, according to Reuters data.
The euro was stronger versus a broadly weaker yen, trading 0.8 percent higher at 162.50.
Data showed on Friday that euro zone private sector growth slowed to a two-year low in September as new orders plunged, making any further interest rate hike this year by the European Central Bank unlikely.
The figures added to evidence that market turmoil, which has seen stock and foreign exchange markets swinging wildly and the ECB pumping temporary funds into money markets to alleviate soaring rates, has affected the real economy.
"Euro zone PMI was quite weak today and that has weighed on the euro," said Vincent Chaigneau, head of foreign exchange and fixed income strategy at Societe Generale in London.
"But I think that the market is getting too ambitious about rate cuts by the Fed. I think we may see the dollar come back but it's still too early to make that call," he added.
Still, a half-percentage-point cut in the overnight federal funds target rate to 4.75 percent has tarnished the allure of dollar-denominated assets. Analysts see this trend continuing given expectations that the Fed may cut rates again this year.
ECB policymakers have kept up generally hawkish rhetoric in contrast to the United States where further cuts are expected.
The U.S. dollar fell to C$0.9939 against the Canadian dollar, its weakest in 31 years, having breached parity on Thursday for the first time since 1976. The greenback last traded at C$1.0002, little changed on the day.
Traders cautioned though that bets the Canadian dollar could strengthen further could run into trouble.
"Currencies should reflect a country's economic fundamentals," said Brian Taylor, senior currency trader at M&T Bank in New York. The loonie "is purely a commodity play and if anything happens to the world economy, Canada will be among the first to be whacked."
The dollar gained against the yen to trade at 115.38 yen, as traders felt more comfortable putting risky carry trades back on the table, which involve selling the Japanese currency for higher-yielding units.
"People think it's OK to take on risk because of what the Fed has done and continue on with carry trade," said Taylor.
(Additional reporting by Nick Olivari in New York and Gertrude Chavez-Dreyfuss in London)
