The dollar stayed near eight-month lows on the euro and edged towards a 15-year trough on the yen today, hurt by expectations of Federal Reserve easing after Japan lined up its own reflation tools.
Adding to speculation that the Federal Reserve will resume quantitative easing possibly as soon as its November policy meeting, Chicago Fed president Charles Evans was quoted as saying the central bank should do much more to spur the economy.
The dollar was less than half a yen above September's 15-year low of 82.87 yen, supported by jitters that Japanese authorities could intervene again if it retested that level, after last month's yen-selling intervention.
It was also teetering above an eight-month low against a basket of currencies, with an important support level at 77.60-61, which if it gives way would open the door to 76.60, its low in January and the index's weakest level this year.
Matthew Strauss, a senior FX strategist at RBC Capital Markets, said the market seemed to have divided currencies into two groupings of QE and non-QE, with the yen, the dollar and sterling in the first group and the euro the most prominent in the second.
"Additional QE measures in one of these 'member' countries are seen as increasing the risk of further QE in the other 'QE member' countries," Mr Strauss wrote in a client note.
The growing risk appetite encouraged by expectations of more funds being pumped into assets helped Asian shares rise and also kept a lid on US bond yields, with the Treasury market expecting the Fed to make new bond purchases. Falling yields have added to pressure on the dollar as returns have become less attractive.
With two of the world's leading reserve currencies seen coming under pressure from printing of more money, gold rose to a new record high of $1,349.80 yesterday. Silver hit another 30-year high of $23.05.
The euro gained 7.6 per cent last month as Fed easing speculation hotted up, even though the market is still wary of sovereign and banking risks in peripheral euro zone economies.
It held steady at $1.3847, near an eight-month high of $1.3860 set on Tuesday.
On the charts its next target is $1.3895, a 61.8 per cent retracement of its fall from above $1.51 late last year to its June low. It then has its 200-week moving average at $1.3920 as the next resistance levels and support sits at $1.3790-1.3805.
The greenback is well down from the high of 83.99 yen it hit after the Bank of Japan announced easing steps yesterday.
The BOJ lowered the range on its overnight call rate target and said it would create a 5 trillion yen ($60 billion) pool of funds to buy assets to shore up the economy, a move analysts said could be expanded if needed to counter fallout from more Fed easing.
"It's really going to be a struggle between Fed easing and BOJ easing, and whoever wins that contest is going to dictate the direction of dollar/yen," said Gareth Berry, a currency strategist at UBS in Singapore.
Market players also said the yen is already starting to weaken in cross currency transactions. The euro hit a five-month high of 115.35 yen late yesterday and held near the high at 115.10 yen.
Reuters