(Updates prices, adds comments)
* PBOC sets yuan midpoint at weakest since October 2012
* Dollar falls broadly as traders expect later Fed rate hike
By Sam Forgione
NEW YORK, Aug 12 (Reuters) - The U.S. dollar fell on Wednesday to its lowest in about a month against a basket of major currencies, on doubts over whether the U.S. Federal Reserve will raise interest rates in September given China’s devaluation of the yuan.
The euro hit its highest level against the greenback in over a month at $1.12150 after China’s central bank set its daily midpoint reference at 6.3306, even weaker than Tuesday’s devaluation.
The euro rose against the dollar on worries that volatility after China’s move could prompt the Fed to avoid increasing rates next month. The dollar stands to benefit from the Fed’s first rate increases in nearly a decade since they are expected to drive investment flows into the United States.
“China’s move has raised more questions than answers about the shape of the global economy, so markets see that as detracting from a Fed rate hike in September,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
Short-term U.S. interest rates markets signaled that traders see no more than a 40 percent chance the U.S. central bank would raise rates at its Sept. 16-17 meeting.
Analysts also said that, in order to unwind bullish bets on the Chinese yuan, investors bought back the euro after having shorted or bet against the currency. That, in turn, drove the euro higher against the dollar.
“There may be some more upside potential for the euro in the short term if this trend continues,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.
The move came after net euro short contracts rose to 113,394 last week, from 104,008 previously, according to Reuters calculations and data from the Commodity Futures Trading Commission released on Friday.
In China, the spot yuan fell to 6.4510 per dollar , its weakest since August 2011. In international trade it touched 6.5943 yuan per dollar, its lowest since early 2011.
The PBOC surprised markets on Tuesday by aggressively lowering its guidance rate, pushing the yuan down nearly 2 percent.
The euro was up 1.17 percent against the dollar at $1.11710 . The dollar was last down 0.75 percent against the Japanese yen at 124.195 yen. The dollar was last down 1.35 percent against the Swiss franc at 0.97525 franc. (Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing by Frances Kerry)