Euro hits 14-month high vs dollar

TOKYO, October 26, 2009 (AFP) – The euro hit a 14-month high against the dollar in Asian trade Monday on signs that China may increase its holdings of the European currency, dealers said. The euro rose to 1.5061 dollars in Tokyo midday trade, its highest level since August 11, 2008 and up from 1.5027 in New York late Friday. The dollar fell to 91.60 yen from 92.07. The euro dropped to 137.91 yen from 138.26.

Traders cited an opinion piece by a Chinese central bank official in the Financial News, arguing that Beijing should boost its holdings of euros and yen, as a factor behind the currency moves.

China has invested a large part of its vast reserves in US dollar assets, such as safe low-yielding US Treasury bonds, but amid the financial crisis Beijing has tried to diversify its investments to improve returns.

The greenback has been weighed down recently by speculation that the United States may be slower than some other major economies to raise interest rates. Investors generally prefer the currencies of countries offering higher yields.

Recent reports in the Financial Times and other media have suggested that US monetary policymakers are contemplating modifying their wording on their outlook for interest rates when they issue a statement next month.

The officials are said to be considering dropping the reference to rates being expected to remain at very low levels for an “extended period”, opening the door to an eventual tightening of policy as the economy picks up.

But “investors are sceptical whether it will be realistic (for the US Federal Reserve) to end its zero interest rate policy amid current economic conditions,” said Chuo Mitsui Trust Bank strategist Yosuke Hosokawa. “The dollar will continue to be on the weak trend,” he said.

The Fed has kept its key rate in a range of zero to 0.25 percent since last December to help the US economy recover from its worst recession in decades.