By Vivianne Rodrigues
NEW YORK (Reuters) - The dollar fell broadly Tuesday as a decline in U.S. consumer confidence to the lowestlevel since February increased expectations the Federal Reservewill print money to buy assets.
The euro surged to a five-month high against the greenback,smashing a key resistance level and option barriers on its wayup, a signal of further gains in the single euro-zonecurrency.
The yen also firmed, pushing the dollar to below 84 yen,its weakest since Japan intervened in the foreign exchangemarket two weeks ago to halt its currency's rise.
The Federal Reserve is likely preparing a fresh round ofquantitative easing measures to announce at the end of its Nov.2-3 meeting, influential hedge fund adviser Medley GlobalAdvisors said in a report on Tuesday, a market source toldReuters.
The Wall Street Journal reported that the Fed is weighing amore open-ended, smaller-scale bond buying program.
"The trend is still dollar-negative. Some kind ofquantitative easing is probably coming up," said Kaz Shirai, aforex interbank trader at Union Bank of California in LosAngeles.
"There's also been talk on Wall Street that $1 trillion maybe needed, and that's still a lot of money. That's pushing10-year yields down, which helps dollar sellers."
U.S. stocks rose on the expectations the Fed will pump moremoney into the economy, which Shirai said brought out morerisk-takers, benefiting the euro and currencies such as theAustralian dollar.
"We're making a new high on the euro," he said, helped bysome option-related buying.
The euro earlier broke a well-flagged resistance at$1.3511, the 50-percent Fibonacci retracement of its fall from$1.5145 last November to its June low around $1.1876.
The euro rose as high as $1.3595, according toelectronic trading platform EBS, taking out barriers at$1.3525. It was last at $1.3580, up almost 1 percent.
Gains in the euro accelerated after the Conference Board,an industry group, reported weaker-than-expected U.S. consumerconfidence data for August.
According to CitiFX, the next stop in euro/dollar is likelythe 55-week moving average that comes in at $1.3630. The banksaid there is solid resistance above that level, specificallyat $1.3670-$1.3740, where the highs from December 2004, April2007, and March 2009 converge.
Brian Dolan, chief currency strategist at Forex.com inBedminster, New Jersey, said over the medium term he's lookingfor a rise in the euro to between $1.38 and $1.39.
"There are a few stopping points in between ($1.35 to$1.38) but it could easily happen over the next few days as theeuro has gained nearly 5 percent over the last week or so. Theeuro is the standout here."
STERLING, YEN SURGE
Analysts said gains in euro/sterling also helped the euroadvance against the dollar. The euro surged against sterlingafter Bank of England policy maker Adam Posen said the Britishcentral bank should start pumping more money into the economy..
The euro rose 1.2 percent against sterling, to around 85.96pence.
Against the yen, the greenback hit a low of 83.70 yen,according to electronic trading platform EBS. The dollar lasttraded at 83.77 yen, down 0.6 percent on the day.
With dollar/yen trading near the lows, investors were onalert about possible intervention by Japan to stem the yen'sstrength.
Michael Woolfolk, senior currency strategist at BNY Mellonin New York, said the pair would need to go lower in order forJapanese authorities to step in.
"We have not heard enough from (Japan). They are sitting ontheir hands for the time being, but we will get concerned if(dollar/yen) gets close to 82. They do not want it to gothere." (Additional reporting by Gertrude Chavez-Dreyfuss, Steven C.Johnson and Nick Olivari in New York; Editing by Leslie Adler)