* Dollar index falls, technicals suggest more selling
* Sluggish U.S. growth weighs on greenback, U.S. yields
* Euro, sterling, yen hit multi-month highs vs dollar
(Adds comments, details; changes byline)
By Vivianne Rodrigues
NEW YORK, Aug 3 (Reuters) - The dollar tumbled on Tuesday
against the euro, the yen and sterling as a fall in benchmark
yields to all-time lows caused investors to shun
dollar-denominated assets.
The euro hit a three-month high at $1.3261. And the dollar
index, which measures the greenback against a basket of
currencies, fell below its 200-day moving average for the first
time since January, which analysts said signals more declines.
A string of weak U.S. economic data and speculation the
Federal Reserve may consider pumping more money into the
economy through new bond purchases has contributed to dwindling
demand for the dollar.
Yields on benchmark two-year Treasury notes fell to a
record low of 0.534 percent earlier.
Douglas Borthwick, a managing director at Faros Trading
LLC, in Stamford, Connecticut, noted that two-year swap spreads
between the United States and Europe are currently at about 69
basis points.
"The yield differential is crying out for higher
euro/dollar," said Borthwick.
In the past five years, when the swap spread has been at
these levels, the average euro/dollar rate was 1.4192.
The euro was last up 0.3 percent at $1.3230 <EUR=> and was
still in an uptrend after Monday's break at $1.3125 of a 38.2
percent Fibonacci retracement of its move from the November
peak to the June trough, according to Reuters data.
The next threshold on that basis is the 50 percent
retracement around $1.3510.
Traders said if the euro can end the week above $1.3350, a
level last seen before fears about Greece accelerated, markets
would see that as a bullish sign that could put the $1.3510
level within range.
Stronger growth in Europe and Asia raises the chances that
central banks in those regions could raise interest rates
before the U.S. Federal Reserve. Such moves would boost demand
for higher yielding Asian and European currencies.
Data on Tuesday showed contracts for pending U.S. home
sales hit a record low in June, while U.S. new factory orders
also fell. For more, see []
Fed Chairman Ben Bernanke said Monday the economy had yet
to recover fully and interest rates should remain low. The Wall
Street Journal in a report on Tuesday suggested the Fed may
consider renewing Treasury or mortgage purchases, a policy it
ended four months ago. []
"Evidence of near paralysis in the U.S. economy has pushed
U.S. yields consistently lower, and until yields bottom, the
dollar will remain under pressure," said Kathy Lien, director
of research at GFT Forex in New York.
Sterling was up 0.2 percent at $1.5924 <GBP=D4>, near a
six-month peak of $1.5968 hit earlier.
The dollar index <.DXY> was down 0.4 percent at 80.640 and
the greenback fell to 85.69 yen <JPY=>, its weakest level since
November. The euro shed 0.6 percent to 113.31 yen <EURJPY=>.
Japanese Finance Minister Yoshihiko Noda said on Tuesday
that excessive, disorderly moves in the foreign exchange market
were undesirable and that too strong a yen hurts exports and
households. []
TIME TO TAKE PROFITS?
Brown Brothers Harriman strategist Marc Chandler said the
yen's strength may aggravate the deflationary forces in Japan,
but rather than intervene in the forex market, pressure on the
Bank of Japan may intensify so that it takes additional steps,
such as increasing its Japanese government bond purchases or
expanding existing lending facilities, to combat deflation.
He also warned the market may be on the verge of
over-selling the dollar the same way it did the euro in June.
In June, fear that debt crises in Greece, Spain and
elsewhere were threatening the future of the euro zone pushed
the euro below $1.19, its lowest level since 2006.
But with euro zone economic data holding firm, attention
has turned to the dollar and signs of a slowing U.S. economy.
"The euro could still have a lot of life left in this
recent run," said Dan Cook, a senior market analyst at IG
Markets Inc in Chicago. "Even so, the prudent trader knows that
in most cases, it is best to lock in at least partial profit,
before the market has a chance to take it all away."
(Additional reporting by Steven C. Johnson in New York;
Editing by Leslie Adler)
