As risk appetite rose and doubts about Chinese buying of Treasurys surfaced, traders pushed the dollar down against most rivals Tuesday. The dollar was first hit after a report quoted a Chinese official as saying China is nervous about carrying too much dollar-denominated debt and that the dollar could fall. The official later claimed he was only expressing his private views, but the damage was done. The U.S. currency fell to a one-month low versus the euro and a new record low against the Swiss franc. The ICE Dollar index--a basket of currencies against the dollar--also hit a one-month low. Meanwhile, the euro hit its highest level against the Japanese yen since May 5 as risk appetite increased. "The dollar has failed to benefit from risk aversion last week, and now we are quickly heading towards fresh U.S. dollar lows in a number of crosses," said Jens Nordvig, head of G10 Foreign Exchange with Nomura Securities in New York. Nordvig added many investors had bet on the dollar due to risk aversion. "But if risk aversion is moderate, and driven mainly by weaker U.S. data, then it is unlikely to benefit the dollar much." But more trouble could await the dollar later this week. The European Central Bank will meet Thursday, and President Jean-Claude Trichet is expected to signal the ECB could raise rates in the coming months, perhaps as soon as next month, adding to the euro's yield advantage. However, not signaling a rate hike at the next meeting, could trigger some pullback in the euro. Late Tuesday, the euro was at $1.4690 from $1.4575 late Friday, according to EBS via CQG. The dollar was at Y80.10 from Y80.10, while the euro was at Y117.65 from Y116.80. The U.K. pound was at $1.6449 from $1.6355. The dollar was at CHF0.8363 from CHF0.8347. The ICE Dollar Index, which tracks the U.S. dollar against a basket of currencies, was at 73.533 from about 73.952. Douglas Borthwick, head of trading and managing director at U.S.-based Faros Trading, noted that a weak dollar is to be expected. "Despite a focus on more peripheral European concerns," he said, the euro "will rally as more market participants focus on the growth in 95% of Europe." The U.S. currency also will face scrutiny from signs of a sagging economic outlook. "Markets have been and continue to be more cautious," Vassili Serebriakov, currency strategist with Well Fargo said. "It's due in part to the recent data and evidence of a slower U.S. recovery."
