LONDON: The dollar nursed broad losses Wednesday as investors cut crowded long positions in the lead-up to the U.S. Thanksgiving holidays, and as heightened geopolitical tensions boosted demand for the euro and yen.
The greenback had hit an eight-month high against a basket of major currencies at the start of the week as expectations grew that U.S. interest rates will increase next month. But it edged back on Tuesday after the downing of a Russian warplane by Turkey near the Syrian border.
The yen, traditionally sought at times of risk aversion, strengthened, hitting a 1-1/2-week high of 122.26 yen per dollar on Wednesday. The euro also gained a third of a percent, to $1.0676, edging further away from a seven-month low of $1.0592 hit on Monday.
The dollar index was 0.2 percent down, at 99.429, though most analysts expected weakness to be temporary.
"It's not related to Fed expectations. It's a result of risk aversion. The dollar has been quite negatively correlated with risk aversion," said Credit Agricole currency strategist Valentin Marinov, in London.
"This is a result of the euro appreciating because the euro has been sold as a carry funding currency over the last few months," he added, referring to the practice of borrowing a low-yielding currency in order to sell it and buy a higher-yielding one - a strategy commonly unwound at times of risk aversion.
Investors generally shrugged off Tuesday's data showing the U.S. economy grew at a healthier clip in the third quarter than initially thought, an outcome that supported the case for the Federal Reserve to hike interest rates next month.
Ahead of the Thanksgiving holiday on Thursday, a run of U.S. economic data will be published later in the day, including durable goods orders, personal consumption, initial jobless claims and house prices.
"Robust U.S. domestic demand growth remains the main driver of U.S. economic activity and justifies a December Fed funds rate increase. Still, we expect the Fed's tightening cycle to be gradual which will limit significant USD upside," said Elias Haddad, currency strategist at Commonwealth Bank in Sydney.
The Australian dollar hit a one-month high of $0.7276 , after Reserve Bank of Australia Governor Glenn Stevens, in a speech late on Tuesday, dampened expectations for further rate cuts.
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