LONDON, Jan 6 - The dollar spiralled to a new record low against the euro on Tuesday in a broad-based sell-off but held on just above a three-year low on the yen, aided by suspected Japanese yen-selling intervention. The dollar hit a fresh 11-year low against the British pound and fell to its lowest level in nearly eight years against a basket of currencies <=USD>, pressured down by persistent concerns about the U.S. current account deficit and expectations of continued low U.S. interest rates. "There is an underlying sense that the dollar has further to go and it would be unwise to bet against that at the current time," said Paul Robson, currency strategist at Bank One in London. "There are rumours of Bank of Japan intervention this morning to keep dollar/yen well supported. You would have thought that if there wasn't support there from the authorities that it would be pushing lower as well." By 1115 GMT the dollar had struck a low of $1.2762 per euro and was 0.75 percent down on the day. It has shed 13 cents against the euro since the start of November and lost 18 percent over last year as a whole. The greenback hit a three-year low just above 106.00 yen on Monday but had scrambled back to 106.20 yen in the European session after at least two suspected bouts of Japanese yen-selling intervention earlier in the day. Sterling climbed above $1.82 for the first time since September 1992, when Britain took the pound out of Europe's exchange rate mechanism after losing a battle with speculators.
EUROPEANS CAUTIOUS
The euro's push higher drew circumspect comments from European policymakers. French Budget Minister Alain Lambert said "brutal foreign exchange movements are bad for everyone" and euro zone policymakers remained vigilant. But he added: "It's important to remember that 60 percent of our trade is within the euro zone". Belgian Finance Minister Didier Reynders called the current euro level "relatively reasonable" but said too fast a change in the exchange rate would cause greater worry. In Germany, the BGA foreign and wholesale trade association expected the euro to average at $1.2500/2750 this year and said it could hit $1.30 near term but BGA President Anton Boerner said fears it could go much further were overblown. Driving the move is a sense that dollar-related issues of a wide U.S. current account deficit and low interest rates are unlikely to go away soon. Comments from U.S. Federal Reserve officials in recent days have added to expectations for low interest rates for some time to come -- a prospect likely to encourage outflows from the dollar to higher-yielding currencies just when the United States needs capital inflows to cover its current account deficit. "Dollar weakness is visible across the board and there is not a great deal of independent action going on in the markets," said Mitul Kotecha, head of global foreign exchange research at Credit Agricole Indosuez in London. "The exception is where we see intervention and Japan is now preventing the dollar from falling below 106." Japan last year spent a record 20 trillion yen in intervention to curb the yen's export-damaging gains against the dollar and on Tuesday Finance Minister Sadakazu Tanigaki and Zembei Mizoguchi, vice finance minister for international affairs, warned Japan would act against sudden or speculative currency moves. Japan's biggest business lobby, the Japan Business Federation, also said that it was vital for Japanese firms exporting to the United States that the dollar stayed above 105 yen.
Data was playing second fiddle to trend. In the euro zone, services sector expansion slowed in December with the euro zone purchasing managers' index falling to 56.6 from 57.5 in November, although still above the 50 mark which divides contraction from expansion. Later in the day, the U.S. Institute for Supply Management December survey of non-manufacturing activity, due at 1500 GMT, is forecast to rise to 61.3 from November's 60.1. U.S. factory orders numbers for November were also scheduled for release at that time.//www.reuters.com