Monday March 21, 2005 - 10:03:15 GMT
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ACM REFCO - www.ac-markets.com
Dollar hits two-week high vs euro
The dollar rose about half a percent against the euro on Monday to hit its highest in nearly two weeks on speculation the U.S. Federal Reserve may adopt a more hawkish stance on interest rates this week. It also rose about a third of a percent to a 1-week high against the yen in a fairly quiet Asian trading session, with financial markets in Tokyo closed for a holiday. Dealers said stop-loss dollar buy orders at around $1.3260-75 against the euro and around 105 yen, generated some volatility.
The dollar staged a recovery against the euro and yen last week as investors wagered that the U.S. currency's month-long slide might have gone too far and turned their attention to possible dollar-boosting interest rate moves.
On Monday, the euro traded as low as $1.3248 -- a level last dealt on March 8 -- against Friday's late New York level of $1.3311. By 0625 GMT it was at $1.3263.
The yen traded at 105.09 to the dollar -- a level last dealt on March 14 -- before recovering to 104.89, which is still 0.19 percent weaker than Friday's late New York level of 104.69.
An EU finance ministers agreement over the weekend to relax much-flouted budget rules that underpin the euro did not have any impact on Asian trading, market sources said. Dealers said the holiday in Tokyo would keep the Asian session thin but choppy, with the focus on the risk of a surprise Markets already expect the Fed to raise the fed funds rate a quarter of a point to 2.75 percent, but they are more interested in the statement that will be released following the policy meeting.
Some analysts expect the Fed to signal it will be more aggressive with monetary policy in coming months by no longer describing the likely pace of future rate increases as "measured".
If the pace of Fed rate rises were to quicken, dollar-denominated securities could recapture some of the funds that have poured into assets in higher-yielding currencies. But some analysts are not sure how lasting any support from such a move would be for the dollar, which has swung this year between optimism about the U.S. economy and the upward path of U.S. interest rates, and pessimism over the country's ability to fund its record current account deficit. He said the balloning current account and trade deficits meant the fundamentals argument for a weaker dollar was intact. The Fed has raised official interest rates by a quarter point at each of its last six meetings, taking the federal funds rate to 2.5 percent.
Benchmark interest rates in the euro zone are 2 percent.
The dollar's three-year decline has had little impact on the U.S. trade position. Data last week showed the trade gap widened to a near-record $58.3 billion in January.
Higher petroleum prices pushed the cost of goods imported to the United States up by 0.8 percent in February, slightly more than expected, a government report showed on Friday. Wall Street analysts had forecast a 0.7 percent increase.
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