FOREX NEWS-Dollar falls broadly as FOMC, data awaited
Mon Apr 28, 2008 4:24pm EDT
(Recasts, updates prices, changes byline)
By Lucia Mutikani
NEW YORK, April 28 (Reuters) - The dollar fell against a basket of currencies on Monday, breaking a three-day rally, as buyers retreated to the sidelines ahead of key economic data and the Federal's Reserve's policy meeting this week.
Analysts said the dollar would likely stay confined to current trading ranges, awaiting a push from either the Federal Open Market Committee (FOMC) statement accompanying its interest rate verdict or first-quarter growth numbers, both due on Wednesday.
The policy-setting FOMC is widely expected to cut the benchmark overnight lending rate by only a quarter of a percentage point to 2.0 percent at the end of a two-day meeting, and signal that its interest rate-cutting campaign is over for now.
"We have got to get past the event risk of the FOMC meeting as well the U.S data before the dollar can make any significant gains. We need a catalyst," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon.
"It could come from the FOMC just simply saying we are done cutting interest rates or highlighting the continuing upside surprises to inflation. This would go a long way towards putting in a bottom for the dollar. It's a necessary, but not sufficient, condition for dollar bottom."
In late New York trade, the New York Board of Trade's dollar index was down 0.2 percent at 72.595 .DXY. The index, which tracks the dollar's performance against a basket of six currencies, advanced for three days last week.
The euro climbed 0.1 percent against the dollar to $1.5638, snapping a three-day decline. But it was still about 3 cents below last week's record high of $1.6018 <EUR=>.
Comments from European Central Bank officials repeating their warnings about persistent inflation lent the euro mild support.
"The market is holding its breath ahead of the Fed tomorrow, so we are not surprised to see the dollar a little lower here after a strong performance last week," said Matthew Strauss, a senior currency strategist, at RBC Capital Markets in Toronto.
"For the first time in a number of FOMC meetings, there is significant uncertainty about the decision and the statement."
ECB President Jean-Claude Trichet and Governing Council member Yves Mersch both said risks to price stability remained on the upside, with Trichet adding that there were no grounds for complacency.
Their comments suggested the ECB is not ready to start cutting interest rates from 4 percent soon, even with regional data pointing to an inflation slowdown in four German states for April.
A surprise jump in a gauge of German consumer sentiment also helped the euro, as it indicated that the euro zone's biggest economy may be in better shape than indicated by last week's weak Ifo business confidence survey. For details, see [ID:nBAE001184].
Growing speculation that the Fed might stop cutting interest rates and a rise in U.S. stocks on takeover deals earlier lifted the dollar to a two-month high of 104.82 yen <JPY=>. The dollar later retreated to around 104.16 yen, down 0.2 percent on the day, as stocks lost their earlier gains.
Sentiment toward the dollar improved last week amid stronger-than-expected U.S. corporate earnings and a growing view that the worst of the credit crisis has passed.
But some analysts are not convinced that the dollar's rally may be sustained given the continued fragility of the financial system and the still-considerable stress in credit markets.
First-quarter gross domestic product data on Wednesday will likely confirm a sharp economic slowdown. A Reuters survey predicted first-quarter GDP growth of 0.2 percent compared with 0.6 percent in the final three months of 2007. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Jonathan Oatis)
Reuters journalists are subject to the Reuters Editorial Handbook which requires fair presentation and disclosure of relevant interests.
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