The dollar hit a three-month low on Monday against a basket of currencies on fears growth in Europe and Asia will outpace that of the United States, while the euro soared after hitting a key technical level. Strong European earnings pushed sterling to a six-month high against the greenback, while the single currency neared $1.32 for the first time since early May.
The euro rally picked up steam after it broke above $1.3125, a key technical level. That marked the 38.2 percent retracement of a decline that began in November and took the euro to $1.1876 in June, its lowest level since 2006. A close above that level would be a bullish sign, with $1.3510, the 50 percent retracement of the November-to-June move, a potential target, traders said. They added that barriers around $1.3200, $1.3250 and beyond could make it a slow and difficult climb.
In late afternoon trading in New York, the euro was up 1 percent at $1.3170. Stronger growth in Europe and Asia raises chances central banks in those regions could raise interest rates before the US Federal Reserve. Such moves would boost demand for higher yielding Asian currencies and the euro.
Signs of weaker US growth have weighed on the dollar in recent weeks. The government on Friday reported that growth slowed to a 2.4 percent annual rate in the second quarter, and Federal Reserve Chairman Ben Bernanke on Monday said the economy is still far from achieving full recovery. An index of the dollar against six major currencies fell 0.8 percent to trade last at 80.88. It was nearing its 200-day moving average, another important technical level that, if breached, could suggest further losses ahead, analysts said.
Sterling hit a six-month high versus the dollar of $1.5897 and hit a four-week high against the euro. Robust results from HSBC and BNP Paribas helped risk sentiment and boosted European shares. Some analysts said more than the increase in the profitability of European banks, some of the results showed quarterly provisions to sustain losses had been cut in half. The Australian dollar hit a three-month peak after data showed Chinese manufacturing expanded for a 17th straight month. It was last up 1 percent at $0.9126.