* Dollar index hits 3-yr low, euro hits 17-mth high
* Model funds latching on to weak dollar trend
* Euro may head toward $1.50, Aussie $1.10-analyst
* BOJ keeps monetary policy unchanged as expected
By Masayuki Kitano
SINGAPORE, April 28 (Reuters) - The dollar sank to a
three-year low against a basket of currencies on Thursday and
was at risk of a drop to $1.50 versus the euro, with
momentum-driven investors piling on in anticipation U.S.
interest rates will be low for a long time.
The dollar slid across the board, with the Australian dollar
bulldozing previous highs to a 29-year peak above $1.0900. Both
the euro and sterling scaled 17-month highs and the Singapore
dollar hit yet another record high.
Various market players including Asian investors and model
funds, sold the dollar anew, said a Tokyo-based trader.
Analysts said more dollar weakness was likely after the
Federal Reserve said overnight that it would end its bond-buying
programme in June as planned and appeared in no rush to tighten
monetary policy further.
"We're looking for reasons why it shouldn't continue but the
over-riding big picture is that it should continue," said Rob
Ryan, FX strategist at BNP Paribas in Singapore.
"It's clear that the dollar selling has been given a green
light and we have the Asian central banks intervening... So that
suggests further upside for the euro and Aussie," Ryan said.
Traders cited talk of dollar-buying intervention by a few
Asian central banks on Thursday. Traders and analysts say such
central banks often later sell some of the dollars purchased
through intervention to buy other major currencies, to help keep
their currency holdings diversified. []
The dollar index, which measures the dollar's value against
a basket of currencies, slid to a three-year low of 72.871, and
last stood at 72.972 , down 0.7 percent on the day.
The dollar index has slid nearly 4 percent this month, on
track for the biggest monthly decline since Sept. 2010 and
bringing it closer to a record low of 70.698 hit in March 2008.
The euro hit a 17-month high of $1.4882 on trading platform
EBS, its rise having gained steam after triggering stop-loss
bids around that level and after breaching resistance around
$1.4850, the upper part of a uptrend channel that had been in
place since mid-February.
"It's obviously pretty much open water here until $1.50,"
said Ryan at BNP Paribas. Ryan added that the Australian dollar
could try for $1.10.
The euro last stood at $1.4858 , up 0.5 percent from
late U.S. trading on Wednesday.
Daisuke Uno, chief strategist at Sumitomo Mitsui Banking
Corp in Tokyo, said the euro could soon rise above its November
2009 high of $1.5145.
"The euro will probably rise to around $1.52 next week," Uno
said, adding that U.S. may be slipping into stagflation, which
makes U.S. policy manoeuvres more difficult.
NO TRACTION FROM BERNANKE
The dollar gained no traction from a news conference by
Federal Reserve Chairman Ben Bernanke on Wednesday where he
forecast weaker U.S. growth in the first three months of 2011,
though he attributed it to transitory factors. It was the first
regularly scheduled briefing by a Fed chief in the central
bank's 97-year history. []
"The reason for the dollar's broad weakness is that market
players think it makes sense to use the dollar to fund
investment in various assets, since U.S. interest rates are
likely to stay low for a while," said Daisuke Karakama, market
economist at Mizuho Corporate Bank in Tokyo.
A Reuters poll on Wednesday showed that most U.S. primary
dealers expect the Fed to keep interest rates near zero through
the end of 2011. By contrast both the European Central
Bank and the Bank of England are seen likely to raise interest
rates later this year.
Sterling was also on a tear, hitting a 17-month peak of
$1.6747 , and last up 0.5 percent at $1.6714. Possible
upside targets include the November 2009 high at $1.6879 and
then the August 2009 peak of $1.7044.
The Australian dollar scaled a fresh 29-year high
near $1.0948 and was last up 0.6 percent at $1.0927.
The yen showed muted reaction after the Bank of Japan kept
monetary policy steady on Thursday, as widely expected.
In a surprise move, Deputy Governor Kiyohiko Nishimura
proposed expanding the BOJ's pool of funds for asset buying and
market operations by 5 trillion yen ($61 billion), to 45
trillion yen, but the proposal was rejected by a vote of one to
eight. []
The yen took the news in stride, however. The dollar was last
down 0.5 percent at 81.75 yen , little changed compared to
just before the BOJ's announcement, and not far from a one-month
low of 81.27 yen hit on Wednesday.
The yen had been sold earlier this month as traders think
quake-stricken Japan is even less likely than the United States
to tighten its monetary policy for the foreseeable future.
(Additional reporting by Reuters FX Analyst Rick Lloyd and
Jongwoo Cheon in Singapore, Hideyuki Sano in Tokyo)
