Dollar rallies against euro

The U.S. dollar touched a one-month high against the euro Friday after comments from European Central Bank President Jean-Claude Trichet left investors uncertain about the bank's future policy path.

The dollar was also boosted by a slight rise in risk aversion despite a smaller-than-expected loss from Citigroup (C, Fortune 500) as investors reassessed the sustainability of the recent spate of more upbeat results.

The ECB's Trichet, who is to unveil the bank's plans for unconventional policy steps next month, gave no details of these measures in a speech in Tokyo, saying he did not want to create expectations.

Concerns over a split in the ECB's governing council and uncertainty over the central bank's next move on interest rates and non-standard measures have weighed heavily on the euro in recent sessions.

"The market is getting increasingly disappointed with the ECB's policy stance," said Vassili Serebriakov, currency strategist at Wells Fargo (WFC, Fortune 500) in New York.

"Trichet failed to clarify the central bank's position on either rates or prospects for non-conventional easing measures," he added. "We could see some stand-alone euro weakness across the board."

In late afternoon trading, the euro fell 1.1% to $1.3039, still near the session low of $1.3019, according to Reuters data, its weakest since March 18, when the dollar fell sharply after the Federal Reserve announced its plan to buy government bonds.

Besides the Fed, central banks in Britain and Japan have started quantitative easing measures to fight the deepening recession around the world.

The dollar was little changed against the yen and last traded at ¥99.22.

"A little bit of risk aversion and euro weakness ... is boosting the dollar," said Paresh Upadhyaya, a portfolio manager at Putnam Investments in Boston.

Despite the better-than-expected results from Citigroup, "the market still remains skeptical about what this means going forward for the financial sector," he said.
Trichet, SNB eyed

Also hurting the euro were Trichet's comments in Tokyo, which analysts at Brown Brothers Harriman said were seen as "a possible warning" to ECB members who have recently expressed different views on the bank's next policy move on both rates and nonconventional measures.

In his speech, Trichet said: "Any ambiguity in our medium-term policy direction would delay the return of sustainable prosperity."

"The euro is the star underperformer (in recent sessions) ... because of question marks over the direction of monetary policy." Putnam's Upadhyaya said. "Markets have been questioning the ECB's stubbornness in easing monetary policy or (its) stubbornness to react in a pro-active manner."

Adding to pressure on the euro was a warning from ratings firm Moody's Investors Service that Ireland's 'AAA' rating may be cut to mid-to-high 'Aa' range if it concludes that the country will emerge from the crisis with relatively weak growth prospects and a much higher debt burden.

Against the yen, the euro dropped below 130 to trade down 1.3% at ¥129.25.

The Swiss franc fell sharply against the euro and dollar after Swiss National Bank Chairman Jean-Pierre Roth warned the central bank was ready to intervene should the Swiss franc strengthen.

The dollar last traded up 1.8% at 1.1670 francs after hitting a session peak of 1.1688 francs, according to Reuters data.