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."
The European Central Bank left its benchmark interest rate unchanged Thursday, but was expected to signal that markets should expect a move next month — despite the euro area’s uneven economic recovery. The Bank of England, meanwhile, kept its main interest rate at a record low amid concerns that the country’s economy is still too weak to cope with higher borrowing costs. It did not issue a statement. Jean-Claude Trichet, the E.C.B. president, was to hold his regular news conference at 2:30 p.m. Frankfurt time. Analysts and economists predicted he would say that the bank is “strongly vigilant” toward inflation. That language would indicate a rate increase in July is probable, though the bank always leaves its options open. On Thursday, the E.C.B. left its rate at 1.25 percent, after raising it in April from 1 percent, the first increase in two years. The benchmark rate in Britain was left at 0.5 percent and the central bank also kept the size of its asset purchase plan unchanged at £200 billion, or about $328 billion. With Germany, the euro-zone’s largest economy, growing so quickly that some economists fear overheating, the E.C.B. has been trying to nudge interest rates back to levels that would be normal in an upturn. But the bank faces a policymaking dilemma because the Greek debt crisis still threatens growth in the 17-member euro area as a whole. Economies in Spain, Ireland and other so-called peripheral countries remain sluggish. Higher rates could make it that much harder for those countries to recover. The economy also remains fragile in Britain. Consumer confidence took a hit in April as more people claimed unemployment benefits and real wage increases lag inflation, weighing on living standards. Spending cuts and tax increases that are part of the government’s austerity program made households even more reluctant to spend. “The story of weak growth is still going to continue for a while,” James Knightley, a senior economist at ING Financial Markets in London, said. Some economists had predicted rates would rise in May this year, but as the economic outlook deteriorated have pushed that back to next February. Mr. Knightley expects an increase as early as November this year. The British economy stagnated in the six months until the end of March. The Bank of England governor Mervyn King has warned that inflation could accelerate to about 5 percent in the short term before falling again. Higher consumer prices, partly a result of higher commodity prices, have started to dampen household spending as companies remain reluctant to hire and banks continue to hold back on lending. Paul Fisher, a Bank of England official, argued last week that raising interest rates should be delayed until the economy was stronger. The International Monetary Fund on Monday backed Prime Minister David Cameron’s plan to cut the budget deficit, which had been criticized by the opposition Labor Party as too strict and harming the economic recovery. 
