Thursday June 5, 2008 - 09:21:06 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar/yen hits 3-mo high, US rates seen steady
(Changes dateline, byline, releads, adds comment, updates
By Simon Falush
LONDON, June 5 (Reuters) - The dollar hit a three-month high
versus the yen on Thursday boosted by a view U.S. interest rates
have troughed, while investors awaited rate decisions by the
European Central Bank and the Bank of England later in the day.
Federal Reserve Chief Ben Bernanke said on Wednesday rising
inflation expectations were a "significant concern", a day after
he gave a rare warning that a weak dollar was adding to price
pressures, giving a boost to the U.S. currency.
"The Fed is less indifferent to the exchange rate now, and
that is supportive for the dollar," said Adam Cole head of
currency strategy at RBC Capital Markets.
"However I think that ahead of rate decisions from the ECB
and the Bank of England and non-farm payrolls data (on Friday)
there will be consolidation."
By 0838 GMT the dollar had hit its highest since late
February against the Japanese currency at 106.18 yen <JPY=>, up
0.8 percent on the day.
The euro rose 0.7 percent to 163.70 yen <EURJPY=> while the
yen hit a seven-month low against the Australian dollar of
101.45 yen <AUDJPY=>.
An early rise in European shares and an ongoing pullback in
oil prices from a record high warmed demand for risky trades,
putting the yen under selling pressure.
The yen tends to suffer when risk appetite grows as
investors move into the carry trade where they sell the Japanese
unit to fund purchases of higher yielding assets.
The euro was steady at $1.5421 <EUR=>, recovering from a
three-week low of $1.5386 hit earlier in the session but stayed
well off a record high of $1.6018 set in April according to
Wednesday's unexpectedly strong U.S. services and
private-sector jobs data reinforced views the Fed could even
raise interest rates later this year FEDWATCH, providing
support to the dollar before a pivotal national payrolls report
The euro, by contrast, has been pressured in recent weeks by
a string of softer than expected data including a fall in May
retail sales announced on Wednesday.
The ECB is seen keeping rates on hold at 4 percent on
Thursday but a more gloomy outlook for the euro zone economy is
compounding the monetary policy dilemma for the European Central
Investors will closely scrutinise comments from ECB
President Jean-Claude Trichet for any move away from the hawkish
stance he has maintained.
However analysts say there is likely to be little shift in
Trichet's rhetoric as he is set to focus on consistently high
"The persistently hawkish message from the ECB is likely to
remain in place until there are clear signs of an easing
inflation pressure and that could still be some months away,"
said Calyon in a note to clients.
The pound fell against the dollar <GBP=> and euro <EURGBP=>
after the Halifax UK House Price Index showed a larger than
expected fall in May.
This will add to the policy dilemma for the Bank of England
which is trying to balance a difficult combination of a slowing
economy and rising inflation.
The BoE is widely expected to keep rates steady at 5 percent
on Thursday, trying to balance a surge in inflation pressures
with mounting signs of distress in the British housing market.
The New Zealand dollar fell sharply after the country's
central bank held interest rates unchanged at 8.25 percent, as
widely expected, and said it was likely to lower them later this
The kiwi slid about 2 percent from before the Reserve Bank
of New Zealand's decision to $0.7655 <NZD=>. Adding fuel to the
losses were comments by RBNZ Governor Allan Bollard that the
currency's drop was to be expected.
The New Zealand dollar also tumbled against the Australian
dollar to hit a six-year low <AUDNZD=R> as the Australian
central bank kept rates on hold earlier this week and said it
was appropriate to leave rates at 7.25 percent for the time
(Reporting by Simon Falush)
(Editing by Chris Pizzey)
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