* Dollar index posts biggest one-day gain in 7 months
* Euro falls to one-month lows vs USD, sterling at 31-mth
* Kiwi also suffers big fall on greenback
By Ian Chua
SYDNEY, Feb 21 The U.S. dollar held firm on
Thursday, having enjoyed its biggest one-day gain in seven
months against a currency basket as commodities and U.S.
equities slid on rumours of a hedge fund in trouble .
The dollar also got a lift when minutes of the Federal
Reserve's last policy meeting showed some policymakers thought
the Fed may have to slow or stop buying bonds before seeing a
pickup in employment.
However, the hawkish argument was balanced by a warning from
other Fed members about the dangers of ending the bond-buying
Crucially analysts believe key board members, including
Chairman Ben Bernanke and Vice-Chairman Janet Yellen, remain
firmly in favour of QE, suggesting the market reaction was
"We characterize the debate as fairly balanced," analysts at
Barclays said in a note. "We maintain our expectation that the
Fed will conduct asset purchases through the end of 2013, with
some tapering in the pace in the second half of the year."
The dollar had already gained ground before the minutes as
rumours that a large commodity hedge fund had been forced to
liquidate its holdings unsettled markets, hitting gold in
particular. The precious metal slumped 2.5 percent.
Investors used the minutes as a further excuse to cut
bearish dollar positions, driving the dollar index up 0.8
percent to its highest level since Nov. 21.
Markets will be combing through a slew of U.S. data later in
the day for more signs of a stronger economic recovery. The
weekly jobless claims report, a survey on the manufacturing
sector and home sales are all up next.
The resurgent dollar saw the euro skid to a one-month low of
$1.3271, well off Wednesday's session high of $1.3434. It
has broken below initial support at $1.3310, the 38.2 percent
retracement of its Nov-Feb rally. The common currency was last
flirting with its 55-day moving average at $1.3280.
Dealers are now awaiting flash PMI's on the eurozone due
later in the day.
The dollar, however, held steady against the yen at 93.63
, having already gained about 8 percent against the
Japanese currency so far this year.
The yen has been the worst performing major currency as
investors bet on more aggressive policies from the Bank of Japan
to reflate the world's third biggest economy.
Sterling took a pasting after minutes of the Bank of
England's last meeting showed the governor and two other
officials voted to restart buying bonds, suggesting the BOE may
be closer than expected to taking more action.
Sterling slumped to its lowest in over two years at $1.5192
, before recovering just a bit of ground to $1.5235.
Investors also took aim at the high-flying New Zealand
dollar, pushing it more than 1 percent lower to $0.8358
. The kiwi was already feeling the heat after comments
from the head of the Reserve Bank of New Zealand prompted
markets to push out the timing of when the central bank will
start raising rates.
Graeme Wheeler said on Wednesday a high kiwi dollar relative
to expectations will lead to a lower-than-expected overnight
cash rate. He also said the currency was significantly
overvalued compared with its economic fundamentals, but admitted
there was no quick means to bring it down.
The Australian dollar fell heavily against the greenback as
well, losing more than a full U.S. cent to reach a low around
$1.0237. A break below $1.0227 will take it back to
levels not seen since October.
Australia's central bank governor testifies before
parliament on Friday, a twice-a-year event that is usually
closely watched by investors.
Recent comments from the Reserve Bank of Australia indicated
it had switched to a wait-and-see mode, having already slashed
its cash rate by 175 basis points in the past 15 months to a
record low of 3.0 percent.