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Source: Reuters

FOREX-Dollar falls to 3-yr low as US economic data weighs

Published: 29 Apr 2011 02:48:31 PST

* Dollar index hits 3-yr low, euro at 17-month high

* Euro may head toward $1.50, Aussie $1.10

* Bank of Japan easing seen possible (Updates prices, adds quotes)

NEW YORK, April 28 - The dollar fell to a three-year low against major currencies on Thursday on the Federal Reserve's intention to keep interest rates near zero, while softer-than-expected U.S. jobs and economic data underscored the bearish sentiment.

Ultra-loose U.S. monetary policy has been a bane for the dollar and a boon for the euro, which is up nearly 11 percent against the U.S. currency so far this year.

The Federal Reserve said on Wednesday it would complete its $600 billion bond-buying program in June, but Chairman Ben Bernanke signaled no rush to tighten monetary policy with the jobs market still in a "very, very deep hole". For more, see:[ID:nN26291565]

Data on Thursday showed the U.S. economy grew less than expected in the first quarter and initial weekly jobless claims rose more than forecast. [ID:nCAT005418], [ID:nLLASFE7EY].

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For graphic on U.S. GDP: http://r.reuters.com/guf39r

U.S. jobless claims: http://r.reuters.com/fuf39r

Fed funds rate hike expectations: http://r.reuters.com/xyz48r

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"The reality is that low short-term U.S. rates for an extended period are guaranteed, regardless of how the Fed's language evolves this year, until the Fed starts intervening in the markets differently," said Lena Komileva, global head of G10 strategy at Brown Brothers Harriman in London.

There is bound to be a long gap between ending the Fed's commitment to low rates for an extended period and the eventual normalization of U.S. rates, which would improve the dollar's yield advantage against the rest of the world, she said.

"This is a story for 2012 at the earliest."

With few positives seen for the dollar, the euro is on track toward $1.50, strategists said.

The dollar index, which measures the dollar's value against a basket of currencies, slid to a three-year low of 72.871 and was last at 73.210 <.DXY>, down 0.4 percent on the day.

The dollar index has slid nearly 4 percent this month, bringing it closer to a record low of 70.698 hit in March 2008.

The euro rose to $1.4790 <EUR=>, up 0.1 percent. The euro hit a 17-month high of $1.4882 on trading platform EBS after breaching resistance around $1.4850, the upper part of an uptrend channel since mid-February.

"It's all one way across the board. Everyone seems to be betting on a weaker dollar and it seems a pretty safe bet," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"The market is taking on board the more dovish element of the (Fed) statement and the fact there is no indication of an early rate hike." He added it was "not a bold forecast" to expect the euro to hit $1.50 in the next week or two.

Euro technical resistance is seen at the Dec. 7, 2009 peak of $1.4905. Above $1.4900, traders reported more offers at $1.4930 up to $1.4950, where another options barrier was reported.

Against the yen, the dollar was down 0.8 percent at 81.52 yen <JPY=>, with options expiries reported at 81.50 and 82.00 yen. The euro fell 0.7 percent at 120.58 yen <EURJPY=>.

The Bank of Japan late Wednesday lowered its growth outlook.

Jens Nordvig and Ikeda Yunosuke, foreign exchange strategists at Nomura Securities, said likely BoJ easing will come when other global central banks are either in tightening mode, such as the European Central Bank and the Bank of England, or starting to contemplate the exit, like the Fed.

"As such, the impulse from relative monetary policy will gradually turn more JPY-bearish in coming months," they said.

"We have been in no rush to recommend USD/JPY longs lately, but as we drift closer to 80, the upside trade is looking increasingly attractive," they said. "At the same time, we are looking for direction from Toshin flows (slightly more positive lately) and U.S. rates (negative in April so far), in order to time any fresh short Yen trades."

With U.S. interest rates expected to remain at record lows for the foreseeable future, higher-yielding currencies are expected to continue to outperform the dollar.

The high-yielding Australian dollar <AUD=> scaled a 29-year high of $1.0948 and was last up 0.3 percent at $1.0900, while sterling hit a 17-month peak of $1.6747 <GBP=>, and was last up 0.1 percent at $1.6642.

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