NEW YORK—The dollar weakened broadly, as earlier dollar buying on the heels of the death of Osama bin Laden gave way to concerns about possible reprisals.
The euro extended its rally, hitting the $1.49 level and its highest point since December 2009 as risk-related assets broadly rallied.
Earlier, the dollar had been underpinned by news that Sept. 11 mastermind Osama bin Laden had been killed by U.S. forces. But that early euphoria was overshadowed by renewed concerns about loose monetary policy and a widening fiscal imbalance that has recently driven the U.S. currency to multiyear lows against most major currencies.
The euro reached as high as $1.4903, up nearly a full cent on the day before paring those gains to trade just below the $1.49 level. The yen strengthened against the dollar to ¥81, and the safe-haven Swiss franc also climbed versus the dollar.
The State Department issued a travel warning to Americans abroad in the wake of bin Laden's killing, cautioning about the prospect of anti-American violence.
In recent trade, the euro was at $1.4887 from $1.4810 late Friday. The dollar bought ¥81.11 from ¥81.12. Meanwhile, the euro traded at ¥120.75 versus ¥120.28. The pound traded at $1.6709 from $1.6703, while the dollar was at 0.8635 franc from 0.8651 franc.
Last week, the dollar plumbed multiyear lows against most major currencies, as loose U.S. monetary policy and a seemingly intractable federal deficit made investors reluctant to hold the currency. In an environment where investors are seeking higher yields, the euro has benefited from expectations that the European Central Bank is tightening borrowing costs in the euro zone.
However, the yield advantage European assets enjoy over those of the U.S. remain the fulcrum of market fundamentals. Because of this, analysts say the boost to the dollar would ultimately prove fleeting so long as the Federal Reserve remained committed to ultra-loose monetary policy.
Bin Laden's death "might trigger some patriotic flows. ... It's small political victory but it doesn't change the economic picture much," said Boris Schlossberg, director of currency research at GFT Forex in New York.
With other major central banks entering a monetary tightening phase, "the question is 'Will other central banks ease off or will they keep tightening?' If it's the latter, the dollar doesn't have much support in that scenario," Mr. Schlossberg said.
Analysts drew comparisons to when Iraqi leader Saddam Hussein was captured in December 2003, which temporarily jolted the dollar lower. The boost eventually faded once the euphoria wore off, however.
