Forex Education

Dollar Falls to Two-Week Low as Fed Rate Increase Bets Reduced The dollar declined to a two-week low against the euro and the yen after the Federal Reserve gave no indication it will start reversing the most aggressive series of cuts in two decades.   Dollar Falls to Two-Week Low as Fed Rate Increase Bets Reduced By Candice Zachariahs and Bo Nielsen June 28 (Bloomberg) -- The dollar declined to a two-week low against the euro and the yen after the Federal Reserve gave no indication it will start reversing the most aggressive series of cuts in two decades. The greenback dropped for a second week as the Dow Jones Industrial Average headed for the worst June since the Great Depression and crude oil surged to a record. The European Central Bank is expected to raise interest rates by a quarter- percentage point on July 3, the same day a government report is forecast to show the U.S. lost jobs in June for a sixth month. ``It's a combination of less hawkishness than expected from the Fed and a fairly sharp breakdown in equities,'' said Richard Franulovich, a senior currency strategist at Westpac Banking Corp in New York. ``That's a pretty toxic mix for the dollar.'' The dollar fell 1.2 percent to $1.5794 per euro, from $1.5606 on June 20, after reaching $1.5791 yesterday, the weakest since June 9. It dropped 1.1 percent to 106.15 yen, from 107.33, touching 105.87 yesterday, also the lowest since June 9. The euro was little changed at 167.62 yen after touching the all-time high of 169.46. Futures on the Chicago Board of Trade show a 24 percent chance that the Fed will increase the target rate for overnight lending between banks by a quarter-percentage point at its next meeting on Aug. 5, compared with 40 percent odds a week ago. The central bank held the benchmark rate at 2 percent on June 25, saying in its statement that ``uncertainty'' about the inflation outlook remains high. Fed Rate Cuts The central bank cut borrowing costs seven times beginning in September from 5.25 percent to prevent the housing slump and credit market losses from dragging the world's largest economy into a recession. The dollar advanced to a one-month high against the euro on June 13, four days after Fed Chairman Ben S. Bernanke said the risk of a ``substantial downturn'' had diminished and accelerating inflation ``would be destabilizing for growth.'' The Canadian dollar appreciated to a three-week high against the U.S. dollar this week as crude oil rose above $142 per barrel. The loonie, named after the bird on the one-dollar coin, increased 0.6 percent to C$1.0105 per U.S. dollar and touched C$1.0049 yesterday, the highest since June 3. Norway's krone rose 1.7 percent to 5.0645 per dollar, reaching 5.0421 yesterday, the strongest since June 9. Commodities such as crude oil and gold account for 54 percent of Canada's exports. Oil is Norway's biggest export. ECB Meeting The ECB is poised next week to raise its 4 percent main refinancing rate for the first time since June 2007, according to the median forecast of 57 analysts surveyed by Bloomberg News. The Labor Department will probably report that U.S. non- farm payrolls fell by 60,000 in June, according to the median forecast of 64 analysts in a separate survey. The euro pared its weekly gain as ECB council member Miguel Angel Fernandez Ordonez, who is also governor of the Bank of Spain, told reporters in Rome yesterday that an interest-rate increase by the ECB ``is not certain, but possible.'' ECB President Jean-Claude Trichet said on June 9 that rates my rise by a ``small amount.'' ``The market is positioned for a series of rate increases, and the ECB is trying to talk down expectations,'' said Ian Stannard, a senior currency strategist in London at BNP Paribas SA, the largest French bank. ``The euro will come under pressure as rate expectations are adjusted.'' The euro may fall to $1.5285 in two weeks, Stannard said. Investors reduced wagers on additional rate increases by the ECB this year, futures contracts showed. The implied yield on the December Euribor futures contract dropped 14 basis points this week to 5.16 percent. European Sentiment An index measuring confidence in the euro area fell to 94.9, the lowest since May 2005, from 97.6 the previous month, the European Commission said in Brussels yesterday. The yen gained 0.9 percent to 10.28 against Mexico's peso and 0.8 percent to 66.27 versus the Brazilian real this week as the Dow dropped 4.1 percent and the Standard & Poor's 500 Index fell 3 percent. The Dow has declined 10 percent this month for the worst June since 1930. Investors bought the yen to pay back loans in the currency used to fund investments in higher-yielding assets, which become less profitable when stocks fall. ``There's very little appetite to go against market trends,'' said Jens Nordvig, a strategist at Goldman Sachs Group Inc. in New York. ``The overall risk appetite is very low.'' The Bank of Japan will keep its target lending rate at 0.5 percent through September 2009, a Bloomberg News survey of economists shows. Brazil's benchmark rate is 12.25 percent, while Mexico's is 7.75 percent. Implied volatility on one-month dollar-yen options reached 11.48 percent, the highest since June 16. Bigger currency swings can wipe out the profits of the carry trade, in which investors borrow in countries with low interest rates and buy assets where returns are higher. To contact the reporters on this story: Candice Zachariahs in New York at czachariahs1@bloomberg.net; Bo Nielsen in New York at bnielsen4@bloomberg.net.

Download MSIE Explorer Here

* If you experience any problems, please contact support@goldbergforex.com or
call us at (305) 947-9639.

 

Copyright 2002 - Goldberg Forex Group - All Rights Reserved - Privacy Policy

Powered by: WBpro