* Euro hits fresh 2-year high
* Dollar index sets fresh 8-1/2-month low
By Lisa Twaronite and Masayuki Kitano
TOKYO/SINGAPORE, Oct 25 The dollar set a fresh
two-year low versus the euro on Friday, pressured by
strengthened expectations the U.S. Federal Reserve will maintain
its asset purchases through early next year.
The dollar also set a fresh 8-1/2-month low versus a basket
of currencies and slipped to a two-week low against the yen.
The euro edged up 0.2 percent to $1.3825 and rose to
as high as $1.3833, its highest level since November 2011.
The single currency shrugged off data the previous day
showing the pace of growth in euro zone business unexpectedly
eased this month as global data suggested the recovery remains
fragile elsewhere as well, with U.S. manufacturing output
dropping for the first time in four years.
While there is some caution about the euro's outlook in the
wake of its recent gains, the single currency will probably stay
firm over the next few months, said Teppei Ino, an analyst for
the Bank of Tokyo-Mitsubishi UFJ in Singapore.
"I think everybody is wondering whether it is really heading
toward $1.40," Ino said.
Still, the euro seems likely to be supported over the next
few months, given the backdrop of dollar weakness, he said.
"If the time frame that you're looking at is the rest of
this year, it's hard to say that the euro will be weak," Ino
In the near term, the euro could take its cues from the
German Ifo survey due on Friday.
The dollar index, which measures the greenback's value
against a basket of currencies, touched an 8-1/2-month low of
The dollar index is down about 0.8 percent for the week,
having come under pressure after a disappointing U.S. jobs
report vanquished any hope that the Fed would taper its stimulus
Against the yen, the dollar set a two-week low of 96.94 yen
and last stood at 97.00 yen, down 0.3 percent on the day.
Although the expectations for the Fed to keep its massive
bond-buying stimulus for longer tend to boost risk appetite and
hurt the safe haven yen, the dollar has struggled versus the yen
this week as U.S. bond yields have fallen, eroding the
greenback's yield attraction.
But with the 10-year Japanese government bond yield
wallowing at even lower levels and having slipped
below 0.60 percent on Thursday for the first time since May 9, a
focus is whether Japanese investors will step up their overseas
"As the JPY weakening trend strengthened over the past year,
the main JPY sellers have been foreign investors, especially
hedge funds," said Citi forex strategists in a research note.
These early bets that Japanese investors would increase
overseas investments failed to materialise, as Japanese yields
did not fall enough to raise the appeal of overseas investments,
and institutions instead repatriated funds.
"Now that JGB yields are passing the 'yield threshold' we
are seeing an increasing likelihood that Japanese investors will
finally invest more overseas," the Citi strategists said.