The dollar fell to a new 15-month low against major currencies on Wednesday, hurt by downbeat official views on the U.S. economy and bullish economic data from China that bolstered risk appetite.
Federal Reserve officials said Tuesday any recovery in the U.S. economy would be erratic, bolstering the view that interest rates would stay low and undermine the dollar with no new U.S. data to drive trading.
Sterling fell broadly, stung after Bank of England Governor Mervyn King said weakness in the currency would help UK exporters and aid Britain's recovery from recession.
Despite gains versus the pound, the dollar index .DXY hit 74.774, its lowest since August 2008, also hurt by strong Chinese economic data that spurred investor appetite for risk -- generally a negative trend for the dollar.
China data came in quite good, which elevates risk interest, said John McCarthy, director of foreign exchange at ING Capital Markets in New York. U.S. yields are abysmally low and nothing suggests they will be raised soon.
In early New York trade, the dollar index traded 0.2 percent lower on the day at 74.876.
The euro EUR= was up 0.3 percent at $1.5028, close to the day's high of $1.5048, according to Reuters data.
Sterling GBP= fell half a percent on the day at $1.6644, having earlier fallen around a cent-and-a-half to the day's low of $1.6620 as BoE governor King emphasized the need for the UK economy to rebalance away from imports to exports, and that a weaker pound would help achieve this.
King spoke after the central bank issued its quarterly inflation report, which said UK inflation would be below target in two years' time if interest rates rose gradually from mid-2010, as expected by the market.
RISK APPETITE RISES
Most importantly, he refused to rule out an end to quantitative easing and said there's no limit at all on the program, UBS currency strategists said of the BoE governor.
Clearly King favours a weak pound, and we still hold the view that policy uncertainty may restrict sterling's expected gains based on valuation adjustments, they added.
Strong Chinese manufacturing data, which showed the export-driven economy was maintaining its recovery, helped stoke demand for the high-yielding Australian dollar pushing it to a 15-month high against the U.S. dollar.
The Aussie was up 0.1 percent at $0.9309 AUD=, having earlier traded to its highest since August 2008. The commodity currency was also boosted after gold prices rallied to a record high again .XAU, while oil futures rose CLc1.
Currencies, including the Australian dollar, have been rising against the U.S. currency, which has been stung by expectations for low rates while those in Australia and elsewhere rise, increasing the returns on their assets.
The dollar was flat against the yen at 89.87 yen JPY=.
The yen is sometimes used as a proxy for the Chinese yuan and was little changed after China said it would refer to changes in capital flows and fluctuations in major currencies when guiding the value of the yuan CNY=CFXS.
That was a departure from past language on the currency, which is pegged to the dollar.
Trading was described as relatively light with the U.S. bond market and the government closed for the Veterans Day holiday.