Wednesday January 30, 2008 - 12:05:57 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar at two-week lows as Fed cut awaited
(Changes byline, updates prices, adds quotes)
By Toni Vorobyova
LONDON, Jan 30 (Reuters) - The dollar slipped to two-week
lows against a basket of major currencies on Wednesday as
investors awaited the U.S. interest rate decision later in the
day, which will likely be another recession-fighting cut.
While the Federal Reserve strives to ward off a recession in
the world's biggest economy, its aggressive monetary easing is
putting pressure on dollar-pegged Gulf countries where inflation
is a bigger concern.
Qatar is looking at possibly dropping its peg to the dollar,
among policy options, the ruler's economic advisor Ibrahim
al-Ibrahim told Reuters in an interview, and would prefer to
make any change in concert with its Gulf partners.
That -- together with comments from former Fed Chairman Alan
Greenspan that the chance of a U.S. recession is at least 50
percent -- gave investors an excuse to sell dollars ahead of the
1915 GMT Fed decision.
"The big question is how much will they go by. They could
well maintain the recent aggressive pace of rate cuts, given
that we believe it's not so much equity market declines that's
forcing the hand of the Fed but in fact the deterioration in the
financial system," said Ian Stannard, senior foreign exchange
strategist at BNP Paribas.
"If we do see an aggressive move from the Fed, then we could
well see the dollar coming under a bit more downward pressure in
the near term," he added.
Financial markets are currently attaching around a
three-in-four chance to the Fed lowering its key fed funds
policy rate 50 basis points to 3 percent. This would follow the
emergency, inter-meeting cut of 75 basis points last week -- the
biggest U.S. rate cut in quarter of a century.
By 1109 GMT, the euro was up a fifth of a percent at
$1.4809, around two-week highs <EUR=>.
The dollar also fell to a two-week low against a basket of
major currencies, at 75.355 .DXY.
It was down 0.22 percent at 106.84 yen <JPY=>.
Concern about the U.S. economy and renewed fears about the
global banking sector after Swiss bank UBS unveiled $4 billion
in new write-downs dampened risk appetite, pulling investment
out of equities and into traditionally safer assets such as
government bonds and funding currencies like the yen.
MAIN RISK: SMALLER CUT?
Economic data releases on Wednesday include the first
estimate of fourth quarter U.S. growth and ADP Employer
Services' snapshot of the U.S. private sector labour market in
January, which some see as offering clues for Friday's official
non-farm payrolls report.
The unravelling of the U.S. housing market and the
subsequent malaise spread throughout global financial markets
have tilted the U.S. economy toward recession, many analysts
say, which has prompted the aggressive Fed action.
"In our view, the main risk scenario is that the Fed sours
market sentiment with a 25 bp rate cut. Such an outcome risks
sending equity markets lower and risk aversion higher -- though
U.S. data Friday will need to confirm this bleaker assessment,"
Commerzbank Corporates & Markets said in a research note.
In contrast to the market expectations for U.S. interest
rates, euro zone rate futures anticipate only 50 basis points of
easing from the European Central Bank this year from 4 percent
(Editing by Ruth Pitchford)
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