Dollar sinks to 6-week low
Demand for the U.S. currency as a safe haven falls as solid corporate earnings encourage investors to buy more risky assets.
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NEW YORK (Reuters) -- The dollar weakened broadly Monday, hitting a six-week low against the euro, as strong U.S. corporate earnings prompted investors to plunge back into high-yielding currencies and other risky assets.
Reports of a last-minute rescue for ailing U.S. lender CIT Group (CIT, Fortune 500) boosted optimism, helping push the euro to $1.4249, its highest level since early June.
An index of the dollar against six major currencies hit a six-week low, while the yen fell and the Australian and New Zealand dollars soared. Both rose last week when Goldman Sachs (GS, Fortune 500) and Intel (INTC, Fortune 500) reported strong second-quarter earnings, fanning hopes that an economic recovery is underway.
"It's a risk-preference story. With equities firmer and breaking some semi-interesting levels, the dollar has come under pressure as a result," said John McCarthy, director of foreign exchange at ING Capital Markets in New York.
Volume was lighter than usual, however, with Tokyo shuttered for a local holiday.
The euro rose 1% to $1.4230 . A climb above $1.4337 touched in early June would take the pair to its highest level of the year.
The euro also added 1% to ¥134.08 while the dollar was flat at ¥94.24.
The pound rose 1.3% to $1.6542 , near a three-week high, while the New Zealand dollar neared its 2009 high of $0.6595, rising almost 2% to $0.6578 . Australia's dollar neared a five-week high at $0.8159, up 1.5%.
Some analysts said the euro looked overextended, especially after it failed to add to its gains following an upbeat report on U.S. leading indicators.
The euro and high-yielders like the Australian dollar "are having a really impressive run, which leaves them vulnerable to profit-taking if upcoming data or earnings undershoot the market's elevated expectations," said Omer Esiner, market analyst at Travelex Global Business Payments in Washington.
HSBC in a research note pointed out that stock market gains also look set to fade and say some of the current rally may be a "squeeze" of investors who expected a summer slump to follow last spring's rally.
"We're not sure that a lot more people now 'believe' the stock market will continue to rally from here," said HSBC.
But for now, investors are content to run with the pack, said Jay Meisler, principal of Global-view.com, an online forum for traders and investors.
"I get the sense there is some skepticism over this latest bout of risk appetite but it is hard to stand in the way," he said, "especially when forecasts, such as the one from Goldman Sachs today, get raised."
Goldman raised its year-end target on the Standard & Poor's 500 index to 1060 from 940 on Monday.
American Express (AXP, Fortune 500), State Street (STT, Fortune 500) and Bank of New York-Mellon (BK, Fortune 500).will release earnings this week.
Federal Reserve Chairman Ben Bernanke is expected to sound an upbeat note on the economy before Congress on Tuesday. Investors will want to see if he mentions withdrawing some of the trillions of dollars spent to help the economy through the crisis. 
