Wednesday June 11, 2008 - 20:34:43 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar down as uncertain Fed-ECB rate outlook weighs
(Updates prices, adds comment, byline)
* Dollar snaps two-day advance
* Beige Book underlines U.S. economic weakness
* ECB's Stark quashes bets on series of rate hikes
By Gertrude Chavez-Dreyfuss
NEW YORK, June 11 (Reuters) - The dollar slid on Wednesday,
snapping its best two-day gain against the euro since 2005, as
investors debated the outlook for interest rates in the United
States and Europe given statements from central bank officials
in recent days.
Investors expect a euro-zone rate rise as soon as July
based on comments from European Central Bank President
Jean-Claude Trichet last week, although some of the bank's
policymakers have doused expectations of further rate rises.
Central bank officials around the world have cranked up
their discussion of inflation in the past few sessions, with
the Federal Reserve saying it will fight inflation despite
concerns about slowing economic growth.
Analysts say the combination of rising inflation and
struggling economies is making it difficult for markets to
gauge the interest rate outlook and trading could be volatile
based on officials' comments in the near term.
The euro did touch a session low against the U.S. dollar on
Wednesday after ECB board member Juergen Stark was reported
saying the central bank is not considering a series of rate
rises. For details, see [ID:nWEA9196]. The euro then recovered
as buyers debated Stark's comments compared to tough
anti-inflation statements made by other ECB officials in recent
"We've seen the dollar retrace some of its gains, but I
think at the end of the day, it's a real tug-o-war between Fed
Chairman Ben Bernanke and ECB President Jean-Claude Trichet as
to who's going to be more hawkish," said Kathy Lien, chief
currency strategist at Forex.com in New York. Overall, Lien
said she expects the dollar to trade within narrow ranges in
the near term.
In late afternoon trading, the euro rose 0.6 percent
against the dollar to $1.5553 <EUR=>. The dollar fell 0.9
percent versus the Swiss franc to 1.0319 francs <CHF=>.
BEIGE BOOK SHOWS US WEAKNESS, WATCH OUT FOR RETAIL SALES
The dollar showed little reaction to the Fed's Beige Book
report, which underscored U.S. economic weakness. For the Beige
Book, see [ID:nWBT009166]
"The Fed is likely to be unhappy about the fact that
consumer spending did not react as expected to the tax rebates,
and market worries about the U.S. economy are likely to pick up
on this as well," said a Forex.com analyst.
Investors will look to Thursday's U.S. retail report for
further clues about the state of the U.S. economy. Analysts
forecast a 0.5 percent rise in headline retail sales, and a 0.7
percent increase in ex-auto sales, according to a Reuters
But given the Beige Book's weak assessment of U.S. consumer
spending, estimates of an increase in retail sales may be off
the mark. If the actual retail numbers fail to match
expectations, the dollar could slide further.
Meanwhile, Fed officials on Wednesday continued to trumpet
the U.S. central bank's inflation focus.
Fed Vice Chairman Donald Kohn said that a steady rise in
energy prices has fueled an inflationary psychology in the
United States and could be a problem if it does not reverse.
St. Louis Fed President James Bullard echoed the same
sentiment. "After a 10-month period in which the dominant
policy concern has rightly been the state of financial markets,
policy can begin to address pressing inflationary concerns
during the remainder of the year," he said.
As a result, the interest rate futures market is fully
pricing a half percentage point increase in the fed funds rate
by October and a total of three quarters of point by year-end.
The dollar had risen to three-month highs against the yen
to 107.75 <JPY=> earlier in the session, but retreated to
106.91, down half a percent on the day. The dollar gave back
gains as investors debated whether the 2.4 percent gain in the
dollar against the yen in the previous two sessions was too
far, too fast.
(Additional reporting by Nick Olivari;)
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