Wednesday June 18, 2008 - 20:46:46 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar edges lower as traders rethink rate hike view
* Dollar edges lower as investors rethink rate outlook
* August Fed rate rise expectations scaled down further
(Recasts, adds comments, changes byline)
By Vivianne Rodrigues
NEW YORK, June 18 (Reuters) - The U.S. dollar edged lower
on Wednesday as investors adjusted their interest rate outlooks
for the United States and the euro zone after conflicting
economic data and monetary authorities toned down threats of
Competing central bank rhetoric was likely to make trading
conditions more volatile in the days ahead while declining
stock market also helped erode the appeal of the greenback,
"The outlook for rates is still uncertain and in the
meantime data has not been very supportive, dragging on stocks
and on the dollar," said Andrew Busch, global foreign exchange
strategist at Bank of Montreal in Chicago. "All in all, we have
yet to see big piles of cash flowing into long dollar
Traders scrambled to revise downward their expectations of
an August Federal Reserve interest rate rise after data this
week showed U.S. housing starts plunged to a 17-year low in
At the same time, U.S. wholesale prices shot up, driven by
energy costs, but analysts reckon the Fed will not rush to
tighten policy in the absence of signs of stability in the
housing sector, which threatens to drag the broader economy
into a recession.
U.S. short-term interest rate futures are pricing in a
roughly 48 percent chance of a 25 basis points Fed rate
increase in August, down from 90 percent earlier in the week.
"The major currency pairs, euro/dollar, are taking their
cue from fluctuations in expectations for policy tightening
both in the U.S. and abroad," said Omer Esiner, currency
analyst at Ruesch International in Washington.
In late afternoon trade, the New York Board of Trade's
dollar index, which tracks the dollar's performance against a
basket of six currencies, was nearly slightly lower at 73.419
.DXY, after rising as high as 73.774 in overnight trade.
STUCK IN RANGES
The euro edged higher, or 0.1 percent to $1.5530 <EUR=>
after earlier slipping to $1.5462. It remained confined to a
$1.53-1.5550 range in the absence of fresh economic data.
Remarks by San Francisco Federal Reserve Bank President
Janet Yellen on Wednesday suggesting the volatility in
financial markets was showing signs of easing gave the market
The dollar was 0.1 percent lower at 107.80 yen <JPY=>,
tracking a fall in U.S. stocks, which were weighed down by a
quarterly loss from FedEx Corp (FDX.N: Quote, Profile, Research, Stock Buzz).
"Earnings have yet to pick up and as a result it's more
difficult to attract flows," said Busch at the Bank of
On Tuesday, officials from the Federal Reserve, European
Central Bank, and Bank of England tamped down expectations for
aggressive interest rate rises to curb inflation pressures.
The U.S. central bank is widely expected to keep its
benchmark fed funds rate target at 2.0 percent next week,
having cut it by 3.25 basis points since mid-September to fend
off a housing-led economic downturn.
"There is no one who believes we are at a neutral policy
stance now on behalf of the Fed. We have extraordinary monetary
accommodation which at some point needs to be removed," said
Michael Woolfolk, currency strategist at Bank of New York
Mellon in New York.
A tightening in monetary policy would help the dollar
regain some of its appeal to investors seeking higher returns.
While expectations of a series of rates hikes from the ECB
have also been scaled back in recent days, a move to 4.25
percent in July is still widely expected.
(Additional reporting by Lucia Mutikani;)
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