Tuesday February 19, 2008 - 22:25:30 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar slips as rate differentials back in focus
(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, Feb 19 (Reuters) - The dollar fell on Tuesday as
investors worried that a spike in oil prices to record highs
could further slow the U.S. economy and prompt the Federal
Reserve to again cut interest rates.
The high-yielding Australian and New Zealand dollars posted
strong performances, after booking early gains as a rise in
global equities and commodities bolstered investor appetite for
The Aussie rose to a three-month high versus the greenback,
after minutes from the Reserve Bank of Australia's February
policy meeting cemented expectations for more interest rate
hikes, boosting the currency's appeal to global investors.
Expectations that the European Central Bank would keep its
benchmark lending rate at 4 percent longer than previously
anticipated pushed the euro to a two-week peak of $1.4757
<EUR=>, according to Reuters data.
"We are beginning to focus back on interest rate
differentials. The fact is in Europe rates are at least holding
steady, while in Australia and New Zealand they are going to be
raising rates," said Mark Meadows, currency strategist at
Tempus Consulting in Washington.
"Continued news of write-downs is really weighing on
sentiment. Also the fact that oil touched $100 a barrel is
leading some to believe that the U.S. might slow further."
The Aussie dollar rose as high as US$0.9237 <AUD=>, a level
last seen in early November. It last traded at US$0.9188, up
0.6 percent from late on Monday. This was as U.S. stocks
surrendered an earlier rally to end slightly lower on the day.
Minutes from the RBA's Feb. 5 policy meeting showed the
central bank had debated a more aggressive 50 basis point rate
hike. While the RBA decided in the end on a modest 25 basis
point rise in the cash rate to an 11-year high of 7 percent,
the minutes pointed to further monetary tightening ahead.
ECB UNLIKELY TO EASE
The New Zealand dollar rode on the coattails of the
Aussie's rally, climbing to US$0.8022 <NZD=>, its highest level
since July. It was last up 0.3 percent at US$0.7971.
The euro rose 0.5 percent at $1.4726 <EUR=>, while the
dollar was down 0.4 percent at 107.71 yen <JPY=>. The Japanese
currency held on to overnight gains, booked on a brief bout of
risk aversion following news about write-downs on risky assets
from European banks Barclays Plc and Credit Suisse.
"The market realizes ECB rates are not going down. This was
the primary reason why the euro was weak in the last two
weeks," said Boris Schlossberg, senior currency strategist at
DailyFX.com in New York.
"Once they realized that the ECB was not going to follow
the Fed and that the Fed would have to continue lowering rates
to stabilize the housing market the flows got right back into
the euro. We are seeing a readjustment of expectations."
The U.S. dollar was down 0.1 percent against a basket of
major currencies .DXY at 76.039.
Credit Suisse (CSGN.VX: Quote, Profile, Research) said it had written $2.85 billion
off the value of its asset-backed investments, while Barclays
(BARC.L: Quote, Profile, Research), Britain's third largest bank, raised its 2007
write-down on the value of risky assets to 1.6 billion pounds
U.S. consumer inflation and housing data await investors on
Wednesday and could fuel the debate on the prospects of
stagflation in the world's largest economy.
"The story of whether the U.S. economy is in a recession or
in the beginnings of a recession, or whether or not is
experiencing stagflation will continue to weigh at least until
we start to see the beginnings of the Fed cuts take effect,"
said Tempus Consulting's Meadows.
The Fed has lowered its benchmark overnight lending rate by
225 basis points to 3 percent since mid-September in a bid to
stave off a recession following a sharp housing downturn.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
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