Dollar hits one-month low

The dollar fell to its lowest in a month against a basket of currencies on Friday, extending falls made on expectations of more US monetary stimulus and helping the euro hold its ground as the bloc agreed steps to prevent the debt crisis spreading. Eurozone finance ministers agreed on Friday on a temporary increase in the capacity of their bailout funds to prevent a new flare-up of Europe's sovereign debt crisis, although analysts said markets may judge it too small to be convincing.
That left the euro still vulnerable to concerns about unsustainable debt levels in some eurozone countries. Some strategists said the euro could test the lower end of the range roughly between $1.30 to $1.35 that it has traded in since late January.
Market players were also focused on Spain, where the government was expected to announce yet more austerity measures in its budget on Friday in a struggle to get the floundering economy back on a sustainable fiscal path. "The stories we've been seeing leading up to the eurozone meeting have probably raised hopes and the latest suggestions are that maybe the increase falls short of some of these initial expectations," said Ian Stannard, head of European FX strategy at Morgan Stanley.
The euro rose 0.3 percent to $1.3343, near a one-month peak of $1.3385 hit earlier this week. Traders said a reported options barrier at $1.34 could limit its rise. Euro gains helped push the dollar index to a one-month low of 78.727. The greenback remained under pressure after dovish comments from Federal Reserve chairman Ben Bernanke and softer US economic data this week raised expectations of further monetary stimulus.
The index was on course for its biggest quarterly fall since the second quarter of last year. Traders said the dollar was also weighed down by selling related to month-end moves by portfolio investors. The Chicago purchasing managers' index, personal consumption and expenditure data and the University of Michigan sentiment survey, due later on Friday, could weigh on the dollar if they are below forecasts.
The dollar also hit a one-month low versus the Swiss franc while against the yen it was down 0.45 percent at 82.01 yen, having hit a three-week low of 81.830 yen. Even though this year's dollar rally against the yen has lost steam over the last three weeks, the greenback was still poised to end the January-March quarter nearly 7 percent stronger. The Japanese yen has come under steep selling pressure since the Bank of Japan unexpectedly eased monetary policy last month.
Sterling also hit a 4-1/2 month high versus the US currency, while the higher-yielding Australian dollar gained 0.4 percent and the New Zealand dollar 0.6 percent. The euro was down 0.1 percent against the yen at 109.47 yen, though it pulled away from a trough of 108.76 hit on Thursday, its lowest in one week.