Dollar Rebounds From 14-Month Low vs Euro

The dollar rebounded Tuesday from a 14-month low against a basket of currencies as policymakers in Europe and Asia remarked on its decline and options-related buying kept it from pushing though $1.50 per euro and 90 yen.

Concern about U.S. currency weakness also prompted the Bank of Canada to leave interest rates at record lows, driving the greenback up 2 percent against its Canadian counterpart.

The dollar has been under sustained pressure this year as investors brace for record low U.S. interest rates to last well into 2010 and questions mount about its status as the world's main reserve currency.

"The market was long overdue for a correction, but we'll have to wait a few days to see if there's any follow-through from this," said Steven Butler, head of FX trading at Scotia Capital in Toronto. "If the euro gets back to $1.48, that's probably still an opportunity to buy it at better levels."

An index that measures the dollar against six other major currencies recovered from a 14-month low at 75.103 and was last up at around 75. The euro , the biggest component in that basket, was off at near $1.48 after failing to take out options barriers at $1.50. It earlier hit a 14-month high of $1.4994.

Earlier, the greenback fell to about 90 yen but later rallied above 91 yen. It was last up at around 90 yen. The U.S. dollar rose more than 2 percent against the Canadian dollar to about C$1.05 after the Bank of Canada kept interest rates at 0.25 percent and said Canadian dollar strength "more than fully offset" favorable economic developments.

The dollar fell to a 15-month low near C$1.02 last week.

Nervous Policymakers

Recent dollar weakness has also unnerved European and Asian officials, who fear their own currency strength will undermine economic recovery. Henri Guaino, a top adviser to French President Nicolas Sarkozy, on Tuesday said a euro at $1.50 is a "disaster" for European industry and the economy.

There are also growing signs that China is concerned about the domestic implications of its yuan currency peg. The yuan rose against the dollar in the non-deliverable forwards market after Market News International quoted an unnamed Chinese government source calling for a reversal of the dollar slide.

In Brazil, the greenback rose more than 2 percent to about 1.75 reais after Brazil's government announced plans to tax overseas fixed-income and stock investment to stem recent currency strength.

But until the market hears stronger rhetoric from the likes of European Central Bank President Jean-Claude Trichet, low U.S. rates coupled with rising asset and commodity prices will probably continue to weigh on the dollar, analysts say.

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"It's one thing to say you want the dollar to stop weakening, it's another to put your money where your mouth is," said Peter Frank, senior strategist at Societe Generale in London. "The market isn't there yet, and won't take notice until it hears this kind of commentary more and from higher-ranking officials."

The Australian dollar climbed as far as $0.9310 after minutes from the Oct. 6 Reserve Bank of Australia meeting said it may be imprudent to keep rates very low.

Later it retreated and fell to near $0.92 amid general dollar buying.

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