* Dollar struggles, euro not far from 14-month high
* Analysts say Fed thought likely to keep rates low
* Market watches euro zone meeting for FX comments
(Updates prices, adds comment, adds detail, changes byline)
By Nick Olivari
NEW YORK, Oct 19 (Reuters) - The dollar hovered near a
14-month low against the euro on Monday as investors bet the
Federal Reserve will hold U.S. interest rates near zero well
into the coming year.
Though the U.S. economy is expected to have exited
recession in the third quarter, investors fear rising
unemployment will keep the Fed from lifting interest rates
quickly. That would diminish the dollar's appeal and encourage
investors to buy higher-yielding, higher-risk currencies and
assets instead.
The euro traded within half a cent of $1.50, a level not
seen since August 2008.
"The dollar remains a victim of U.S. fiscal and monetary
policies," said Andrew Bekoff, chief investment officer for
Family Office Group in New York. "The current Federal Reserve
policy remains accommodating. This serves to keep rates low and
spending by the government high."
High-yielding currencies such as the Australian and New
Zealand dollars hovered near multi-month highs against the
greenback while U.S. earnings optimism lifted Wall Street.
The euro rose as high as $1.4965, according to Reuters
data, and was last at $1.4944 <EUR=>, up 0.3 percent from late
Friday. Analysts said a test of $1.50 was still likely in the
days ahead.
"The global growth story is getting better. The U.S.
economy has improved, so everyone is selling dollars and buying
emerging markets. The data justifies the risk," said Sebastien
Galy, senior currency strategist at BNP Paribas in New York.
Traders were on the lookout for possible remarks on euro
strength and dollar weakness at a gathering of euro zone
finance officials in Luxembourg, although analysts said the
group was unlikely to significantly talk down the euro.
"Maybe we will discuss the euro, but it's not the main
focus point this evening," said Austrian finance minister,
Josef Proell. []
On a trade-weighed basis, the euro <EUREER=ECBF> jumped to
118.82 on Friday, close to historic highs, though it eased to
117.00 on Monday. The euro has appreciated nearly 7 percent
against the dollar this year.
YEN, AUSSIE GAIN; STERLING STRUGGLES
The dollar was down 0.3 percent at 90.63 yen <JPY=> and
slipped 0.5 percent lower to 1.0126 Swiss francs <CHF=>. The
Australian dollar rose 1.2 percent to $0.9267 <AUD=>, near a
14-month peak, after a central bank official said a return to
normal monetary policy was appropriate. For more see
[].
The Reserve Bank of Australia raised rates to 3.25 percent
this month, the first major central bank to hike rates since
the global economic crisis began.
Sterling climbed to a four-week high against the dollar on
Monday, with market positioning, strength in global stocks and
a report on the UK housing market all helping the pound claw
back earlier losses.
Sterling had traded lower against the dollar and euro for
most of the European session on Monday after a Bank of England
policymaker said the central bank should continue its
quantitative easing programme because the financial system has
yet to fully recover.
Sterling last traded up 0.3 percent against the dollar atr
$1.6403 <GBP=>.
The New York Fed added to dollar woes on Monday when it
said reverse repo tests did not mean it was ready to use this
tool to drain money from the banking system.[]
In a reverse repo, the Fed sells assets such as Treasuries for
cash with an agreement to buy them back later, effectively
tightening policy by draining money from the banking system.
The Fed has also been buying assets such as mortgage-backed
debt, and some analysts said it could lend the dollar modest
support by winding down those purchases while still holding
rates near zero.
"Such a move would steepen the yield curve and make the
dollar more attractive versus the yen on an interest rate
differential basis, possibly pushing the pair to 95 yen," said
Boris Schlossberg, research director at GFT Forex in New York.
Comments from Federal Reserve Chairman Ben Bernanke had
little impact on currency markets.
Bernanke on Monday said that the performance of the dollar
and the U.S. economy will depend on the government's success in
controlling the country's budget deficit. [].
(Reporting by Nick Olivari and Steven C Johnson; Editing by
Andrew Hay)
