The U.S. dollar fell broadly on Tuesday after a Chinese official said the greenback could weaken further against other major currencies while European equities rebounded as investors picked up beaten-down shares.
The dollar hit a one-month low against the euro and a record low versus the Swiss franc after a Chinese official warned or risks in excessive holdings of U.S. dollar assets and said the greenback would continue to weaken against other major currencies.
It slid 0.4 percent against a basket of major currencies to 73.63 <.DXY>, its lowest since May 5, and plumbed 0.8328 Swiss francs on trading platform EBS-- a record low.
China has been growing its share of U.S. securities quite aggressively in the past and the threat that they will be selling these holdings has always been there, said Adam Myers, senior forex strategist at Credit Agricole.
But this is not a credible threat as a sell-off will lead to a steepening of the U.S. yield curve while will hurt the U.S. and the Chinese, who are dependent on the U.S. economy. But I do agree that the dollar is headed lower in the long term.
U.S. Treasury debt prices were slightly weaker after the comments, with the benchmark T-note yield up about three basis points at 3.024 percent.
The dollar has been persistently weak in recent months due to worries about the solidity of the U.S. economic recovery and expectations that interest rates, most notably in the euro zone, will continue to be raised significantly faster.
The European Central Bank is expected at its meeting on Thursday to signal a second rise in rates this year, offsetting the impact on the euro of concerns that Greece will eventually have to restructure its debt.
The euro jumped to a one-month high of $1.4666, up almost 0.6 percent on the day and up more than 4 percent since it bottomed out against the dollar on May 23.
Investors will look to a speech by Federal Reserve Chairman Ben Bernanke at 1945 GMT for more clues on the U.S. central bank's view of the economic slowdown and its impact, if any, on the Fed's exit from its extremely easy monetary policy.
MILD EQUITIES BOOST
European shares snapped a four session slide as investors picked up beaten-down stocks, notably in the utilities and basic resources sectors, though traders said thin volumes were exaggerating the moves.
The FTSEurofirst 300 <.FTEU3> index of top European shares was up 0.4 percent, clawing back from an 11-week closing low on Monday hit as investors fretted that the global economy was going through a soft patch after a string of weak U.S. data.
The European gains helped lift world stocks as measured by MSCI <.MIWD00000PUS> up 0.25 percent, and followed gains in Asian markets.
Shares in Asia were higher so that's giving us a mild boost and some people think the falls yesterday may have been a bit overdone, said Markus Huber, senior trader at ETX Capital.
The Nikkei average <.N225> rose 0.7 percent as short covering of utilities and some bargain-hunting offset selling on worries that U.S. growth may be stalling, analysts said.
U.S. stock index futures also pointed to a firmer open on Wall Street, with futures for the S&P 500 up 0.6 percent, Dow Jones futures up 0.4 percent and Nasdaq 100 futures up 0.4 percent.
U.S. Federal Reserve officials on Monday said recent economic data has been disappointing, with one suggesting it could delay the Fed's exit from its extremely easy monetary policy.
Brent crude oil for July delivery rose back above $114 a barrel after Iraqi Oil Minister Abdul-Kareem Luaibi said world oil markets were well supplied and prices were not too high. The comments suggest Iraq may not favor the increase in OPEC output that Saudi Arabia and other Gulf producers favor.
London Brent was last up 0.3 percent at $114.81, having fallen as low as $113.80 earlier on expectations that oil cartel OPEC will raise production targets when it meets this week.
Gold was firmer at $1,546.00 per ounce, after closing at $1,543.05 on Monday. Gold, one of the chief beneficiaries of worries about the security of currencies and other assets, set a record high of $1,575.79 per ounce in early May.
The Australian dollar, the world's fifth-most traded currency, fell below $1.0700 after the Reserve Bank of Australia held rates steady at 4.75 percent, as widely expected. The Aussie was trading around $1.0745 before the decision.
(Additional reporting by Anirban Nag, Harpreet Bhal and Daniel Magnowski in Singapore; editing by Patrick Graham)