FOREX-US dollar drops as investors seek higher returns

* Riskier assets in demand; Wall Street shares up

* Euro at 9-1/2 mth high, but euro zone woes to slow gains

* BoE, ECB keep rates unchanged; US jobs data looms
(Adds comment, updates prices, changes byline)

By Wanfeng Zhou

NEW YORK, Nov 4 (BestGrowthStock) – The U.S. dollar fell to a
28-year low against the Australian currency on Thursday and
over a nine-month trough versus the euro after Federal Reserve
plans to buy more Treasuries pushed U.S. yields lower and
prompted investors to seek returns elsewhere.

The Fed’s commitment on Wednesday to open-ended purchases
of Treasuries, implying low funding costs, brings into focus an
expected increased use of the dollar in carry trades. In such
trades, the greenback is used to fund purchases in commodities,
emerging markets and higher-yielding currencies.

“My expectation is as soon as the Fed starts pushing that
button and printing money, that money immediately leaves the
U.S. because there are a lot of more compelling investments
overseas than there are in the U.S. right now,” said Ihab
Salib, senior portfolio manager and head of international fixed
income at Federated Investors in Pittsburgh, Pennsylvania.

“My expectation is for a steady trend of a weaker dollar,”
Salib said, adding he expects the dollar to decline more versus
currencies of emerging markets and peripheral markets such as
Australia, Canada and Norway than versus the yen or euro.

Federated Investors manages $341 billion in assets.

The euro (EUR=EBS: ) was last at $1.4216, up 0.5 percent on
the day, having touched a 9-1/2-month high at $1.4283,
according to EBS data. Traders reported that an option barrier
at $1.4250 was taken out. There are more barriers at $1.43.

Bids on the euro are also expected around $1.4200-$1.4220.

Technical strategists also flagged the $1.4370 area, the
78.4 retracement of the move from the November high of $1.5140
to the June $1.1875 slide. The next target is around $1.4580,
the euro’s January high.

“The Fed in my view is trying to debase the dollar because
printing all that money is not going to spur growth on its
own,” said Axel Merk, president and portfolio manager at Merk
Investments in Palo Alto, California. Merk runs the company’s
$500 million currency mutual fund.

Investors awaited a key U.S. jobs report and the outcome of
policy meeting by the Bank of Japan, both due out on Friday.

EURO AT $1.50?

In contrast to the Fed, the Bank of England on Thursday
said it made no changes to its asset purchasing plan. Analysts
had expected the BoE to follow the Fed.

The European Central Bank, meanwhile, kept interest rates
unchanged at 1 percent. ECB President Jean-Claude Trichet said
Fed policy actions do not suggest the United States was
actively seeking a weaker dollar. [ID:nLDE6A3217]

Some market participants are forecasting the euro will hit
$1.50 in short order. Others are skeptical given renewed
worries about the euro zone’s sovereign debt woes.

Salib said he wouldn’t be surprised to see the euro at
$1.45 to $1.50 by the end of year. But “I don’t see it going
much beyond that just because what’s happening domestically
within Europe,” he said.

Christian Broda, managing director at the $12 billion hedge
fund Duquesne Capital Management noted “$1.50 is not what it
used to be in 2006-2007” in real exchange rate terms. He said a
euro at $1.50 would be the equivalent of $1.35 in 2007 terms.

“The euro is in a secular trend which is an appreciation
… Asia is a positive force for the euro’s appreciation. It is
in a stage of development that needs a lot of capital goods,”
Broda said, adding Germany — the biggest euro zone member —
is a beneficiary of Asia’s need for capital goods.

The dollar index (Read more about the global trade. ) (.DXY: ), a gauge of its performance against
a basket of six currencies, fell to an 11-month low at 75.631,
taking out trendline support from its March 2008 lows.


Link to PDF on Fed decision:

For more stories on Fed policy: [FED/AHEAD]

Graphic on assets and QE


The Australian dollar, whose central bank raised rates this
week, hit a post-float high at US$1.0158 (AUD=D4: ). It was last
at US$1.0152, up 1 percent. The New Zealand dollar rallied to
its highest since mid-2008 at US$0.7976 (NZD=D4: ), and was last
up 2.1 percent at US$0.7954.

Currency volatility, a gauge of market sentiment, fell in a
variety of currencies including the Australian and New Zealand
dollars on Thursday. Lower volatility tends to improve risk
appetite and are usually a go-signal to increase carry trades.

Against the yen, the dollar eased to 80.63 yen (JPY=: ),
close to its 1995 postwar record low of 79.75. Traders remained
on alert for yen-selling intervention by Japanese authorities.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
Andrew Hay)

FOREX-US dollar drops as investors seek higher returns