Dollar climbs in London

The dollar climbed on Thursday and could extend gains as investors unwound bullish bets in higher-yielding currencies after the US Federal Reserve cut growth forecasts and gave no hints of more monetary easing. The Fed downgraded its growth outlook for the US economy and raised its inflation expectations, while holding off from signalling a third round of quantitative easing, saying the US recovery should gradually pick up heading into 2012.
Investors who had gone long on riskier assets on expectations that the Fed could flag more quantitative easing cut those positions and bought back the dollar. The dollar index, which tracks the greenback against six major currencies, was up 0.8 percent at 75.382 with near-term resistance at its 100-day moving average at 75.630. A recent run of weak US economic data had fed into some expectations the Fed may consider more economic stimulus, as it did in August 2010.
At that time, weak US data and the threat of deflation prompted Fed Chairman Ben Bernanke to flag a second round of monetary stimulus, dubbed QE2, sending the dollar lower and riskier assets soaring. The Fed's $600 billion quantitative easing programme has flooded the market with dollars, driving investors to fund leveraged carry trades with the greenback. Some investors expect the end of the second round of QE next week could lead to an unwinding of those dollar-funded trades.
Sterling slid against the US currency to three-month lows of $1.5974, falling past option barriers at $1.60 after the Bank of England, in contrast to the Fed, on Wednesday raised the prospect of offering more monetary stimulus to revive flagging economic growth. Elsewhere, a Chinese purchasing managers' survey showing factory-sector growth was close to stalling in June further dampened risk appetite.
That helped push the Australian dollar, which has strengthened as China's booming growth has boosted demand for Australian commodities, down 0.6 percent to $1.0514 against the safe-haven greenback, down more than a cent from Wednesday's high. The dollar last traded up 0.4 percent at 80.58 yen, close to a session high of 80.65 yen. It also gained against the Swiss franc, and was last up 0.2 percent at 0.8414 francs. Some traders said Asian sovereign players were scooping up the dollar across the board while stepping up sales in the euro.
The euro fell 0.9 percent against the dollar to $1.4226, as weak eurozone flash PMI data raised concerns over tepid growth outside the core economies of France and Germany and added to worries about debt-laden Greece. European Central Bank President Jean-Claude Trichet said the warning lights were flashing red on the eurozone debt crisis, leading some to question whether the ECB will continue with its monetary tightening cycle. Safe-haven bids on the back of widening peripheral bond spreads also pushed the euro lower against the Swiss franc. The single currency was down 0.6 percent at 1.1971 francs, close to a record low of 1.1946 francs hit on June 16.