October 6, 2010 / 4:40 PM / 9 years ago

FOREX-U.S. dollar sinks to 15-year low against the yen

* Dollar falls to 15-year low against the yen

* Dollar index drops to 8-1/2 month low

* Euro up but struggles as Fitch downgrades Ireland (Recasts with additional details on technical levels and updates prices)

NEW YORK, Oct 6 (Reuters) - The dollar tumbled to a new 15-year low against the yen and an 8-1/2 month low against a basket of currencies on Wednesday on rising expectations the U.S. Federal Reserve will further ease monetary policy.

The euro rose above its 200-week moving average around $1.3921, hitting a fresh eight-month high as the U.S. dollar extended losses.

The yen climbed to levels where the Bank of Japan last month sought to weaken it. Investors were reluctant to push the dollar too low against the Japanese currency over fear of a new intervention.

Dollar losses accelerated after a report showed U.S. private employers unexpectedly cut 39,000 jobs in September after an upwardly revised gain of 10,000 in August. [ID:nEAP103400]. The private-sector report from ADP, a payrolls processor, gives a glimpse of the labor market ahead of Friday’s government data on U.S. non-farm payrolls for September.

“It all adds to the case for the Fed coming in to create more stimulus,” said Eric Viloria, currency strategist at Forex.com in New York.

The comments of Chicago Federal Reserve Bank President Charles Evans, quoted as saying the central bank should do much more to spur the economy [ID:nN05203033], also kept negative dollar sentiment firmly intact. This has intensified speculation the Fed will resume quantitative easing, possibly in November, by buying more bonds.

Midway through the New York session, the dollar dipped as low as 82.75 yen JPY=EBS on electronic trading platform EBS before recovering to 82.86 yen, still down 0.4 percent on the day JPY=. The session peak was only 83.27 leaving the dollar/yen trading in a tight range despite the extreme low.

Wednesday’s low was below the 82.87 level where the Bank of Japan moved to weaken the yen on September 15. The greenback was well below the high of 83.99 yen it hit on EBS after the Bank of Japan (BOJ) announced easing steps on Tuesday.

The dollar was down 0.5 percent against a basket of currencies .DXY at 77.370, having fallen as far as 77.361.

EURO GAINS

The euro gained 0.7 percent at $1.3925 EUR= in a volatile session that saw it swing between losses and an eight-month high of $1.3930 on the EBS trading platform EUR=EBS.

The single currency was helped earlier by data showing a surge in German manufacturing orders in August [ID:nLDE6950ZQ], leaving a potential for the single currency to test $1.40.

The euro pared gains after Fitch downgraded Ireland’s credit rating, renewing concerns about the fiscal health of peripheral euro-zone countries. [ID:nWLA4711]

The next technical level is $1.3958 on EBS, the 50 percent Fibonacci retracement of the move from the July 2008 peak to the June 2010 low, according to Reuters calculations.

Goldman Sachs is now forecasting euro/dollar at 1.40, 1.50 and 1.55 on 3-, 6- and 12-month basis

The dollar also touched a 2-1/2 year low against the Swiss franc at 0.9599 francs CHF= on EBS trading platform. This brings it closer to the all-time low of 0.9572 hit on EBS, while it is already below the all-time low recorded on Reuters data of 0.9674.

The dollar’s steady drop prompted talk of an escalating global currency war, ahead of the IMF-G7 meetings this weekend, with emerging countries growing increasingly edgy about the flood of capital inflows from advanced economies.

Though he did not mention any names, U.S. Treasury Secretary Timothy Geithner on Wednesday took a not-so-subtle dig at China when he said that countries running big trade surpluses need to let their currencies rise or risk triggering a destructive round of competitive devaluations. [ID:nN06208024]. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Currency tensions rise interactive map r.reuters.com/jec96p

Reuters Insider interview with French FinMin Lagarde link.reuters.com/geg27p ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Commodity currencies rose on expectations of funds being pumped into the market, with commodities likely beneficiaries,

The higher-yielding Australian dollar AUD=D4 hitting its highest in more than two years at $0.9788, leaving it on course for a test of the 2008 high of $0.9851.

Additional reporting by Steven C Johnson and Vivianne Rodrigues in New York and Jessica Mortimer in London Reporting by Nick Olivari; Editing by Andrew Hay

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