|
|
 |
 |
 |
|
Dollar Rises as Traders Brace for Fed Minutes
Reuters, February 21, 2006
NEW YORK (Reuters) - NEW YORK (Reuters) - The dollar traded higher on Tuesday as currency investors braced for minutes from the January 31 Federal Reserve policy-setting meeting for hints on how much higher U.S. interest rates may climb.
Since that meeting, new Fed Chairman Ben Bernanke has commented extensively on monetary policy, indicating that the Fed would be vigilant in holding down inflation expectations. The dollar rose on his comments, which reinforced market expectations of more U.S. rate increases.
"Most of the market is anticipating a couple more Fed rate hikes, and I guess the risks are if we can read anything into (the minutes) that would indicate otherwise," said John Beerling, regional foreign exchange trading desk manager with Wells Fargo in Minneapolis.
The minutes were to be released at 2 p.m. EST (1900 GMT).
Early afternoon in New York, the euro traded around $1.1912, according to Reuters data, down about 0.2 percent from levels late on Monday.
Against the yen, the dollar traded at 118.80 yen, up 0.5 percent. Against the Swiss franc, the dollar was nearly flat at 1.3080 francs.
Some analysts said the market would quickly shrug off the minutes as history, given that they were from Alan Greenspan's last policy meeting as Fed chairman, and focus on last week's comments by new Chairman Bernanke.
"Because we just heard last week from Mr. Bernanke indicating future rate increases may be needed, downside risks to the dollar from these minutes may be limited," said Alex Beuzelin, foreign exchange market analyst with Ruesch International in Washington.
But if the Fed minutes are not as hawkish on the U.S. rate outlook as market positioning currently reflects, the risk is that the dollar could slip below the 118.50-yen area, said Tim O'Sullivan, trading manager with Gain Capital in Bedminster, New Jersey.
The dollar barely budged after the Conference Board's leading economic indicators rose 1.1 percent to a record 140.1 in January, easily beating expectations of a 0.6 percent rise.
Interest rates are also forecast to rise in the euro zone this year, but the single currency found little support in upbeat comments from European Central Bank policy-makers this week.
ECB President Jean-Claude Trichet said on Monday that financial markets are "perfectly sensible" in expecting the central bank to raise rates in March. But this failed to spark a rally in the euro.
With the U.S. fed funds rate at 4.50 percent, dollar-denominated assets are more appealing to investors in search of high yields than those of the euro zone, where rates are at 2.25 percent, or in Japan, where the cost of borrowing is virtually zero.
This week, currency investors will also pay close attention to U.S. inflation data due on Wednesday to see whether that strengthens or diminishes the case for the Fed to continue raising rates.
Seasonally adjusted U.S. consumer price inflation is expected to have risen 0.5 percent month-on-month in January, against a fall of 0.1 percent in December. Core prices, which exclude food and energy, are expected to rise 0.2 percent.
|
|
 |
