* Dollar index falls to 8-1/2 mth low, support at 77.60
* Euro pares gains vs dollar as Fitch downgrades Ireland
* Dollar struggles near 83 yen, market wary of intervention
(Updates prices, adds quote, graphics)
By Jessica Mortimer
LONDON, Oct 6 (Reuters) - The dollar fell on Wednesday to an
8-1/2 month low against a basket of currencies and edged towards
a 15-year trough versus the yen, hurt by expectations the U.S.
Federal Reserve will further ease monetary policy.
A broadly weak dollar helped push the euro to an eight-month
high, though the single currency pared gains after Fitch
downgraded Ireland's credit rating, renewing concerns about the
fiscal health of peripheral euro zone countries. []
Comments by Chicago Fed President Charles Evans, who was
quoted as saying the central bank should do much more to spur
the economy [], kept negative dollar sentiment
firmly intact, however. This has intensified speculation the Fed
will resume quantitative easing, possibly in November.
"The QE story is still the driver of dollar weakness, and as
we saw after the ISM data yesterday, even stronger U.S. data
cannot help the dollar," said Stephan Maier, currency strategist
at Unicredit in Milan.
"There's some resistance for the euro around $1.39 but if it
goes through that then if definitely looks like it could test
$1.40."
At 1117 GMT, the dollar was up 0.1 percent against a basket
of currencies <=USD> <.DXY> at 77.860, having fallen as far as
77.570, its lowest since January 20.
The euro was down 0.2 percent at $1.3810 <EUR=>, reversing
gains after earlier hitting an eight-month high of $1.3882 on
the EBS trading platform.
The single currency was helped earlier by data showing a
surge in German manufacturing orders in August [],
leaving a potential for the single currency to test $1.40.
Technically, the euro's next target is $1.3895, a 61.8
percent retracement of its fall from above $1.51 late last year
to its June low of $1.1876. The 200-week moving average stands
at around $1.3920.
WEAK DOLLAR
The dollar dipped as low as 82.97 yen <JPY=> and hit a 2-1/2
year low against the Swiss franc at 0.9641 francs <CHF=> on EBS
trading platform. This brings it closer to the all-time low of
0.9572 hit on EBS, while it is already below the all-time low
recorded on Reuters data of 0.9674.
The dollar was close to September's 15-year low of 82.87 yen
<JPY=>, with traders reporting stops in the 82.70-90 area.
It was supported by wariness that Japanese authorities could
step in again to curb yen strength if it retested that level.
The greenback was well below the high of 83.99 yen it hit after
the Bank of Japan (BOJ) announced easing steps on Tuesday.
The dollar's steady drop prompted talk of an escalating
global currency war, ahead of the IMF-G7 meetings this weekend,
with emerging countries growing increasingly edgy about the
flood of capital inflows from advanced economies.
"Given all the talk of more QE by the Fed, the trend for the
dollar index is lower and it can fall another 3-4 percent from
these levels," said Neil Mellor, currency strategist at Bank of
New York Mellon.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic showing trade weighted currencies since 2007
http://r.reuters.com/qun86p
Currency tensions rise interactive map
http://r.reuters.com/jec96p
Reuters Insider interview with French FinMin Lagarde
http://link.reuters.com/geg27p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> Indeed, the growing risk appetite encouraged by expectations
of more funds being pumped in, helped stocks and commodities.
This helped commodity-linked currencies, with the
higher-yielding Australian dollar <AUD=D4> hitting its highest
in more than two years at $0.9781, leaving it on course for a
test of the 2008 high of $0.9851.
(Graphics by Scott Barber, additional reporting by Anirban
Nag)
