Friday, October 18 14:32:03
The dollar slid to eight-and-a-half-month lows against the euro and a currency basket today on expectations the U.S. Federal Reserve may delay scaling back its monetary stimulus following this month's political battles over the budget.
Analysts said concerns about the negative impact on the U.S. economy and the likelihood the Fed would leave its bond-buying programme intact until well into next year would weigh on the dollar, leaving the euro the potential to rise towards $1.40.
"The real economy has been negatively impacted by the government shutdown and uncertainty of the debt crisis, all of which pushes out eventual Fed policy normalization which is bad for the dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.
"We may get a bounce (in the dollar) as Europe closes on some profit taking and position squaring ahead of the weekend and Tuesday's nonfarm payrolls."
The dollar index, which measures the dollar's value against a basket of currencies, fell to 79.478, its lowest since early February. It last traded at 79.649.
The euro rose to $1.3703 against the dollar, its highest since early February when it touched its 2013 peak of $1.3711. It was last at $1.3676, little changed on the day and is up 1 percent for the week, its best week since September 20.
A little over a month ago, analysts were convinced the Fed was ready to embark on the first step of reining in five years of ultra-loose monetary policy for the world's biggest economy.
But the Fed unexpectedly left policy unchanged in September. This was followed by a partial 16-day halt in U.S. government spending in October, then a deal over the debt ceiling which leaves scope for further wrangling over the budget early next year.
"Expectations for tapering have been pushed out and that will be negative for the dollar ... The trend is definitely pointing towards $1.40 for the euro," said Niels Christensen, currency strategist at Nordea in Copenhagen.
Analysts at Citi also said the euro could move closer to $1.40 in the near term due to the expected delay in the Fed reducing stimulus. They expect the euro to be bought "as a safe haven and reserve proxy for the dollar". (Reuters)