Wednesday June 11, 2008 - 11:28:10 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar/yen rises on Fed, Stark weighs on euro
* Dollar strikes 3-1/2 month high versus yen
* Hawkish talk from Fed officials support dollar
* ECB's Stark reins in extent of ECB rate cut expectations
By Naomi Tajitsu
LONDON June 11 (Reuters) - The dollar struck a 3-1/2-month
high against the yen on Wednesday after more tough talk from
Federal Reserve officials on inflation firmed expectations of a
U.S. interest rate rise this year.
The euro momentarily hit a session low against the dollar
after European Central Bank board member Jeurgen Stark was
reported as saying the central bank is not considering a series
of rate rises, even as investors expect a hike in July
Central banks in the past few weeks have cranked up their
rhetoric about their rate outlooks, with the Fed apparently
joining the ECB in saying it too will fight inflation pressures
even as economic growth slows.
Analysts say the combination of surging prices and
struggling economies is making it difficult for markets to gauge
the rate outlook of central banks, adding that markets could be
whipped around by officials' comments in the near term.
"Participants aren't sure how central banks are going to
handle the situation where inflation pressures seem to be rising
at the same time as growth prospects are slowing," said Philip
Shaw, chief economist at Investec.
"Therefore markets are going to pay more attention to
policymakers for guidance as to how monetary policy prospects
are likely to pan out."
The euro traded 0.3 percent higher at $1.5505 <EUR=> by 0953
GMT, recovering from a slide to a session low of $1.5454 after
Stark told Bloomberg News that the ECB will do everything
necessary to anchor inflation expectations.
Stark's comments came after ECB President Jean-Claude
Trichet surprised markets last week when he signalled that a
rate increase could come as soon as next month to limit the
inflationary impact on the economy from soaring oil prices.
Traders took Stark's comments to be softer in tone than
those of Dallas Fed President Richard Fisher, who on Tuesday
said the U.S. central bank would not allow inflation
expectations to rise unchecked, echoing comments made by Fed
Chairman Ben Bernanke a day earlier. [ID:nN10365737]
Such hawkishness pushed the dollar up to 107.75 yen <JPY=>
on Reuters data, its highest level since late February
Bernanke had said the risk the U.S. economy has entered a
substantial downturn has diminished over the past month,
sparking the interest rate futures market to price in as much as
75 basis points of rate hikes by the end of the year FEDWATCH.
However, analysts cited the downgrade last week of the bond
insurance arms of MBIA Inc (MBI.N: Quote, Profile, Research) and Ambac Financial Group
(ABK.N: Quote, Profile, Research) as evidence that problems in the U.S. economy are far
from over [ID:nN05590179].
"The underlying evidence is not supporting (Bernanke's) case
(on the economy), I think the market is pricing in too many rate
hikes, and the dollar rally hasn't got anything to back it up,"
said Adam Myers, markets strategist at Credit Suisse.
Strong warnings about inflation risks from Fed officials
came alongside an unexpected barrage of remarks from the U.S.
Treasury, which has said it is keeping an eye on the dollar and
keeping options open for dollar-buying intervention to stem its
Some analysts said they were surprised by the slew of
comments from financial officials in the run-up to the Group of
Eight finance ministers meeting later in the week, adding they
would be watching to see if currencies will be discussed at the
Japan's Ministry of Finance said currencies may make it on
to the agenda when the nation hosts the meeting later this week,
while adding it the issue was unlikely to be included in the
final communique [nT346837]
(Additional reporting by Simon Falush; Editing by Malcolm
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