- 18Oct
The dollar rose from a 10-month low against a basket of currencies on Monday for the second straight session as investors continued to bet recent declines against the greenback are overdone.
Gains were limited though amid uncertainty on the size of further quantitative easing though investors were more certain it will occur after Federal Reserve Chairman Ben Bernanke on Friday offered his most explicit signal yet that the U.S. central bank was set to ease monetary policy further. For more see [ID:nN15187998].
The dollar extended a rebound that started late last week, with the euro retreating from an 8-1/2-month high and the Australian dollar AUD=D4backing off from Friday's peak above parity, the currency's highest level since it was floated in 1983.
Traders said short-term speculation and model accounts and Asian central banks were active in the session as the euro fell as low as $1.3830. Next downside targets are technical support at $1.3825 and then the Oct. 12 low of $1.3775.
There was muted reaction to foreign investors being heavy buyers of long-term U.S. securities in August and nearly tripling monthly purchases of U.S. government debt, according to a U.S. Treasury Department report on Monday. [ID:nN18262411]
"It is a continuation from Friday," said Chuck Butler, president of EverBank World Markets in St. Louis. "Now everyone knows (QE) is going to happen we are seeing some profit taking in the euro dollar and commodities."
The dollar index .DXY was up 0.3 percent at 77.240, after rising to 77.645. The rally needs to extend above its Oct. 12 high of 77.93 to signal a short-term bottom is in place after Friday's 10-month trough of 76.144, analysts said.
The index has lost nearly 5 percent in the past month as investors increased their bets against the dollar on heightened market expectations for the Federal Reserve to unveil a second round of quantitative easing as early as November.
"The dollar's move down has been extremely aggressive and there are investors wondering whether or not too much quantitative easing has been priced in," said Jane Foley, senior currency strategist at Rabobank.
Market players were also trimming their bets against the dollar ahead of a forthcoming G20 meeting and before hedge funds' book closings at the end of November, analysts said.
The euro was down 0.3 percent on the day at $1.3929 EUR=, down from a more than eight-month high of $1.4161, hit on trading platform EBS on Friday. Traders said an option expiry at $1.3900 could limit further price movements.
Data from the U.S. Commodity Futures Trading Commission showed speculators trimmed bets against the dollar in the latest week but still had hefty wagers against it. [IMM/FX]
