Dollar Index Rebounds From 15-Month Low

The dollar rallied from a 15-month low against major currencies Wednesday in a technical rebound after selling pressure failed to push the U.S. currency through key levels.

Until its recovery, the dollar was down for most of the session, hurt by downbeat views by Federal Reserve officials on the U.S. economy and bullish Chinese manufacturing data that bolstered risk appetite.

Fed policy makers said on Tuesday any recovery in the U.S. economy would be erratic, bolstering the view that interest rates would stay low and undermine the dollar with no new U.S. data to drive trading.

Sterling fell broadly, after Bank of England Governor Mervyn King said weakness in the currency would help UK exporters and aid Britain's recovery from recession.

"It was a technical failure to break through the old lows on the dollar," said Joseph Trevisani, senior market analyst at FX Solutions in Saddle River, New Jersey. "It's still looking lower but it is going to take a stronger push for the dollar to get through on the downside."

The dollar index was up at near 75 after going as low as 74.774, its lowest since August 2008, despite the gains against the pound.

The euro was down at near $1.49, falling from a session high of $1.5048, according to Reuters data. The euro faces key resistance against the dollar around $1.5060, Trevisani said.

Sterling fell 1 percent on the day to about $1.65, having earlier fallen as low as $1.6553. It was the biggest one-day drop since Oct. 23 at current prices.

Earlier in the global session, BoE governor King emphasized the need for the UK economy to rebalance away from imports to exports and said a weaker pound would help achieve this.

King spoke after the central bank issued its quarterly inflation report, which said UK inflation would be below target in two years' time if interest rates rise gradually from mid-2010, as expected by the market.

"Most importantly, he refused to rule out an end to quantitative easing and said there's no limit at all on the program," UBS currency strategists said of King's comments.

"Clearly King favors a weak pound, and we still hold the view that policy uncertainty may restrict sterling's expected gains based on valuation adjustments," they added.

Reversal

The dollar's gains in the New York session completely reversed the earlier trading theme where the dollar was hurt by strong Chinese economic data that spurred investor appetite for risk — generally a negative trend for the dollar.

"China data came in quite good, which elevates risk interest," said John McCarthy, director of foreign exchange at ING Capital Markets in New York. U.S. "yields are abysmally low and nothing suggests they will be raised soon."

The strong Chinese manufacturing data, which showed the export-driven economy was maintaining its recovery, helped push the high-yielding Australian dollar to a 15-month high against the U.S. dollar before those gains evaporated on the greenback's strength.

The Aussie was last down at about $0.92, having earlier traded to its highest since August 2008. The dollar rose slightly to just below 90 yen .

Trading was described as relatively light with the U.S. bond market and the government closed for the Veterans Day holiday.

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