Wednesday July 16, 2008 - 20:42:58 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar rebounds from record low vs euro
* Dollar climbs from record low vs euro, helped by low oil
* Fed minutes, inflation data renew talk of rate hike
* Wells Fargo earnings ease financial market concerns
(Updates prices, adds quotes, adds Fed minutes, adds
By Steven C. Johnson
NEW YORK, July 16 (Reuters) - The dollar rose on Wednesday,
moving further from a record low against the euro, as a slide
in oil prices and surprisingly strong earnings at Wells Fargo &
Co soothed fears about the U.S. economy and financial sector.
U.S. stocks also rallied, while the dollar got an added
boost after minutes from the Federal Reserve's June meeting
showed officials believed inflation pressures meant the next
interest rate move was likely to be an increase.
With separate data showing U.S. consumer prices rose last
month at their fastest rate since the aftermath of Hurricane
Katrina in 2005, analysts said FX investors were increasingly
certain of at least one Fed rate hike before the year is out.
"The first responsibility of any central bank is price
stability," said Bank of New York Mellon strategist Michael
Woolfolk, who said the Fed could raise rates by September.
"The Fed will eventually sacrifice growth to curb
inflation, even if growth looks poor," he said.
The euro was 0.6 percent weaker at $1.5817 <EUR=> as North
American trade wound down, well off a record high above $1.60
set a day ago. The dollar was up 0.3 percent at 105.01 yen
<JPY=> and 0.9 percent at 1.0174 Swiss francs <CHF=>.
Sterling fell 0.4 percent to $1.9988 <GBP=>.
U.S. short-term interest rate futures are pricing in a 76
percent chance that the Fed raises interest rates from their
current 2 percent by December.
GROWTH QUESTIONS REMAIN
Not everyone is convinced the Fed will tighten policy,
though. Investor attention remains focused on the U.S.
financial sector, analysts say, particularly after the U.S.
government was forced to come up with a rescue plan for
mortgage finance giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac
(FRE.N: Quote, Profile, Research, Stock Buzz), just as one of the country's biggest mortgage banks,
The turmoil around Fannie and Freddie and fears about more
credit losses at regional banks drove the dollar sharply lower
a day ago, with the euro hitting a record high at $1.6037.
Federal Reserve Chairman Ben Bernanke reiterated to a House
of Representatives panel on Wednesday that the risks to U.S.
growth have increased along with upside inflation risks,
mirroring remarks he made a day earlier before the Senate.
"I think the potential bullish implications of the Fed
minutes for the dollar may be tempered by some of Bernanke's
somber expectations about the U.S. economy," said Bob Lynch,
head of North America FX strategy at HSBC in New York.
Also, while higher interest rates raise the attractiveness
of dollar-denominated securities, some analysts fear they would
also choke economic growth at a time when investors worldwide
are concerned that the U.S. economy could still fall into a
Concerns about the U.S. financial sector receded a bit on
Wednesday after Wells Fargo, the fifth-largest U.S. bank,
raised its dividend despite a 23 percent decline in profit
caused by bad loans. [ID:nN16284000].
The dollar also edged higher when Bernanke told the House
panel that currency intervention may be warranted in certain
"Bernanke's no fool, he's been handed a terrible deck of
cards and he's in a very rough spot right now," said Firas
Askari, head of FX trading at BMO Capital Markets in Toronto.
But he added that dollar gains were largely tied to a fall
in oil prices CLc1 after data showed U.S. stocks of crude oil
and refined products rose last week.
"At the end of the day, I think you look to pick up some
euros down at these levels," he said.
(Additional reporting by Nick Olivari and Gertrude
Chavez-Dreyfuss in New York; Editing by Diane Craft)
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