LONDON The dollar and the yen fell on Monday against growth-linked currencies which drew support from higher stock markets as investors cheered prospects of more economic reform in Asian powerhouse, China.
Chinese shares posted their biggest gain in more than two months on Monday, as Beijing announced its most sweeping economic and social reforms in nearly three decades. .CSI300
Those gains saw global shares hit record highs .MIWD00000PUS but the major currencies of the dollar, yen and euro on balance remain more concerned with the debate over how long major central banks will keep monetary stimulus easy and the liquidity taps open.
"Financial markets have started the week on a positive footing, where the prospect of reform in China and continued low rates in developed nations buoy equity markets," said Tom Levinson, currency strategist at ING.
"Funding currencies, such as dollar, yen and the Swiss franc are soft as investors look for value and yield."
The dollar came off highs last week as the Federal Reserve's chief-in-waiting encouraged faith it would keep it $85-billion-a-month bond purchases intact this year. Most investors now expect the Fed to start paring stimulus only in March 2014, meaning there will be more dollars flushing through the global financial system.
The European Central Bank, however, has also pledged to keep rates near record lows and may yet take more action while the Bank of Japan is also set to be aggressive in providing monetary stimulus to reach its inflation goal. The BOJ will hold a regular policy meeting this week and is expected to maintain its ultra-loose policy.
That flood of global liquidity and the promise to keep rates low should continue to put pressure on low-yielding currencies like the dollar, the yen, the Swiss franc and even the euro pegged back against currencies like the Australian and New Zealand dollars.
The dollar index .DXY was down 0.2 percent at 80.665 as some investors trimmed long dollar positions. The dollar was down 0.3 percent at 99.845 yen, while the euro shed 0.2 percent to trade at 134.92 yen. The euro was marginally higher against the dollar at $1.3515.
The Australian dollar was up 0.5 percent at $0.9417 while the New Zealand dollar was also up by a similar margin. Both currencies tend to outperform when growth prospects about Asian powerhouse China improve.
Still, investors are keeping a close eye oncoming U.S. data to gauge the timing of any tapering of the Fed's bond-buying.
A key piece on data, due on Wednesday, is October retail sales. Data on Friday showed currency speculators added to more favorable bets in the dollar and turned even more negative on the yen in the week ended November 12.
"I think the market wants to keep risk-on trading, but some think the dollar/yen is high and aren't willing to go higher yet," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.
"But I think some people believe the dollar might go higher by the end of the year, so they want to keep their long positions in dollar/yen," he said.
(Additional reporting by Lisa Twaronite in TOKYO)