Wednesday August 6, 2008 - 11:41:22 GMT
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Reuters - www.reuters.com
Forex News - Dollar hits 7-month high vs yen, helped by Fed stance
By Alastair Sharp
LONDON (Reuters) - The dollar hit a seven-month high against the yen
on Wednesday as a signal from the Federal Reserve that interest rates
would stay low for some time lifted U.S. stocks and offered hope that
its policy would support the U.S. economy.
The dollar rose as much as 0.3 percent to 108.70 yen, the highest
since mid-January, according to Reuters data. The yen also fell against
the euro, as gains in European shares whetted investor appetite for
riskier assets, diminishing the Japanese currency's safe-haven allure.
The Fed on Tuesday kept rates at 2 percent, as widely expected, with
Dallas Fed President Richard Fisher the sole policymaker dissenting in
favor of a rate hike, contrary to expectations that one other official
might join him.
U.S. stocks rose on Tuesday as investors ultimately showed limited
reaction to the Fed's concerns about weakness in the economy. Analysts
said that some market focus was turning to yen selling on Wednesday as
"There's been a tentative return to open carry trades and the rally
in stock markets has helped that," said Adam Cole, global head of FX
strategy at RBC Capital Markets. "That has helped drive yen short
He added that the dollar was supported against the euro on short
covering in the U.S. currency after its slide earlier in the session.
The euro was little changed at $1.5468 by 7:03 a.m. EDT, retreating
from earlier gains.
With the Fed meeting over, investors awaited Thursday's meeting of
the European Central Bank, which is expected to hold rates at 4.25
percent after raising them last month.
Investors said the euro may find some support before the rate
decision because of expectations that surging euro zone inflation will
lead ECB President Jean-Claude Trichet to maintain his hawkish stance
on monetary policy.
Many in the market expect the ECB to keep rates unchanged in the
coming months due to a slowdown in euro zone growth, while a Fed rate
rise is also unlikely anytime soon. Some analysts said this would
support the euro against the dollar.
"Until the end of this year we expect no rate change from the
central banks, and that means rate differentials will remain broadly
where they are," said Marcus Hettinger, global FX strategist at Credit
"In the end, the interest rate advantage of the euro versus the
dollar is still pretty large compared to the (U.S.) current account
deficit," he said.
The dollar index, which tracks the U.S. currency's movements against
the currencies of major trading partners, was steady at 73.930,
recovering from an earlier slip.
Selling pressure on the euro was increased by German manufacturing
orders data for June, which fell an unexpectedly sharp 2.9 percent and
stoked fears of a sustained period of weakness in Europe's biggest
"Demand from abroad is collapsing, especially in the euro zone. The
rest of the world is wobbling too, but not on the scale of Europe,"
said Andreas Scheuerle, an economist from Dekabank.
(Reporting by Alastair Sharp)
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