Wednesday April 30, 2008 - 20:36:52 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar falls as Fed's pause seen unconvincing
(Recasts and updates prices, changes byline)
By Lucia Mutikani
NEW YORK, April 30 (Reuters) - The dollar fell against the
euro on Wednesday after the Federal Reserve cut interest rates
as expected, but did not convincingly signal a pause in its
easing campaign aimed at propping up an ailing economy.
Investors had anticipated that the policy-setting Federal
Open Market Committee (FOMC) would indicate an end to the
easing cycle that started in mid-September, encouraged by
signs of stability in financial markets.
Analysts viewed the statement accompanying the FOMC
decision to cut the key overnight lending rate by 25 basis
points to 2.0 percent as being a bit on the dovish side, with
growth concerns determining the future direction of policy.
"My interpretation is that they will pause in June.
However, if the prospects for economic growth deteriorate
significantly, they can move again. I think that is what's
causing the dollar to weaken," said Mark Meadows, senior
currency strategist at Tempus Consulting in Washington.
The euro surged to a session peak of $1.5642 <EUR=>
against the dollar, after initially falling soon after the
FOMC decision. It was trading up 0.3 percent at $1.5620.
Despite the dollar's losses, the European single currency
was on track to post its biggest monthly decline against the
dollar since May 2007, according to Reuters data.
The New York Board of Trade's dollar index, which tracks
the dollar's performance against a basket of six currencies,
fell 0.4 percent to 72.567 .DXY.
Interest-rate cuts have undermined the appeal of
dollar-denominated assets to foreign investors seeking higher
returns and a pause by the Fed would help to halt the
Further easing by the U.S. central bank will hurt the
dollar, especially with key lending rates in the euro zone
expected to stay at 4 percent for a while.
SUBTLE PAUSE SIGNAL
"If anything, the signal of a pause is more subtle than
the market may have hoped for and one would have expected them
to acknowledge an improvement in financial markets more than
they have done," said Alan Ruskin, chief international
strategist at RBS Greenwich Capital in Connecticut.
The dollar gave up gains versus the yen, in line with U.S.
stocks, with investors taking profits on the unclear interest-
rate outlook. The dollar was flat at 104.00 yen <JPY=> after
earlier hitting a two-month high at 104.87.
It was still on course for its biggest monthly gain versus
the Japanese currency in four years, according to Reuters
Sterling surged to a session peak of $1.9896 against the
Data earlier showing a surprising rise in U.S.
private-sector jobs this month and a faster-than-expected pace
of economic growth in the first quarter gave the dollar some
But a separate report indicated business activity in the
country's Midwest contracted for a third consecutive month in
April, leading analysts to believe that growth risks remained
skewed to the downside.
"Even allowing for a small fiscal engendered third-quarter
growth blip, it is hard to see the U.S. economy providing much
positive dollar fuel," Ruskin wrote in a note.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
journalists are subject to the Reuters Editorial Handbook which
requires fair presentation and disclosure of relevant interest
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