Wednesday March 23, 2005 - 08:27:06 GMT
Share This Story
ACM REFCO - www.ac-markets.com
FX Daily Technical Strategy
Dollar firm after Fed plays up inflation risks
The dollar held near a one-month high against the euro on Wednesday, boosted after the Federal Reserve signalled it may speed up the pace of interest rate rises to counter any acceleration in inflation.
While the Fed kept the word "measured" in its reference to the expected pace of tightening, it said "pressures on inflation have picked up" and the risks to growth and price stability would only remain balanced with appropriate policy action.
The central bank has raised the federal funds rate by 25 basis points at seven straight meetings since June 2004.
Short-term U.S. rates stand at 2.75 percent, above the euro zone's comparable rate of 2 percent and virtually zero percent in Japan.
As of 0650 GMT, the euro was slightly down at around $1.3070, not far from a one-month low near $1.3055 marked on Tuesday.
The dollar bought around 105.35 versus 105.63 in late U.S. trade, dragged down by a drop in euro/yen. It had risen to a one-month high around 105.70 yen in the previous session.
The euro bought around 137.65 yen, down from 138.25 yen in late U.S. trade.
The euro has weakened in recent sessions partly due to euro zone leaders endorsing a new version of the Stability and Growth Pact, which makes it easier for countries with excessive budget deficits to avoid sanctions.
Traders also cited the euro's failure to rise above $1.35 when it advanced against the U.S. currency earlier in March.
The dollar steadied near five-week highs against sterling and the Swiss franc at $1.8865 and 1.1885 Swiss francs respectively.
High-yielding currencies that investors have favoured in carry trades also took a bruising.
The Australian dollar was at around 77.95 U.S. cents, down about 2 percent since Friday. The New Zealand dollar has shed more than 2 percent this week.
While the threat of faster inflation is usually bad for a currency, the Fed's promise to stamp out price pressures with higher rates helps lure foreign investors to short-term dollar deposits. Treasury bond yields at eight-month highs may also entice investors.
Economists expect the Fed to stick with the current pace of its credit tightening campaign for now. All 20 U.S. primary bond dealers in a Reuters poll forecast the Fed would raise rates by a quarter point at its next two meetings.
Stronger economic growth and rising official interest rates have boosted the dollar this year almost 4 percent against the euro and 3 percent versus the yen, interrupting a three-year slide driven mainly by worries about the giant U.S. deficits.
Attention now turns to the U.S. consumer price index for February, which traders and investors will scour for any hint that higher energy and commodity prices are feeding into consumer prices. The CPI will be released at 1330 GMT.
the median forecast of economists was for an increase of 0.3 percent in the headline CPI and a 0.2 percent rise in the core index, which excludes energy and food prices.
Such a rise would keep the year-on-year pace of core CPI at 2.3 percent, the upper end of the Fed's perceived comfort zone between 1.5 percent to 2.5 percent.
@09h30 GMT: G.B. Final Q4 GDP
@10h00 GMT: E.12 January Trade Balance
@10h00 GMT: E.12 January Industrial new orders
@13h30 GMT: U.S February CPI
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."