Tuesday August 29, 2006 - 21:31:37 GMT
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REUTERS... FOREX-Dollar slides after Fed minutes seen as neutral
By Kevin Plumberg
NEW YORK, Aug 29 (Reuters) - The dollar declined on Tuesday after minutes from the Federal Reserve's Aug. 8 policy meeting reflected a lack of urgency on the part of the U.S. central bank to contain inflation pressures by raising interest rates.
Earlier in the session, the dollar had pared losses, and even gained against the euro, amid expectations the minutes would reflect some controversy over the Fed's decision three weeks ago to keep interest rates steady at 5.25 percent.
But the minutes instead suggested the majority of the Fed's Open Market Committee thinks that taking a time out in the two-year policy tightening cycle is less risky for the economy than continuing to raise rates.
"The Fed is seeing no clear and present danger from not raising rates immediately once more. They can afford to wait and assess the economy," said Mike Moran, foreign exchange strategist with Standard Chartered Bank in New York.
"In terms of the outlook, it's a lot more dovish than some of the dollar bulls had hoped for," he added.
By late afternoon, the euro rose 0.3 percent from Monday to $1.2820 after plumbing intraday lows around $1.2750.
Against the yen , the dollar extended its decline to 116.65 yen, down 0.5 percent, retreating from Friday's one-month high of 117.40 yen.
U.S. economic data in the last few months have pointed to slowing growth, apparently supporting the Fed's view that inflation pressures will likely moderate as growth eases.
The minutes did little to change the market's grasp of the Fed's line of thought, with the September fed funds future contract reflecting a 12 percent chance of a rate increase next month and the implied yield according to the December contract slipping by a basis point.
"FX markets were perhaps a little long of dollars heading into the minutes with the view that the risk was for a sterner sermon," said David Mozina, head of foreign exchange strategy at Lehman Brothers in New York. "Today's minutes at the margin make a rate hike at the September 20 meeting even less likely."
DATA-DEPENDENT UNTIL FURTHER NOTICE
Mozina added that there were parts of the minutes to bolster the cases of both inflation hawks and doves.
At the least, the minutes directed the market's attention back to the full slate of U.S. economic data this week.
"It places a very large focus on the numbers in the employment report on Friday", said Paul Nolte, director of investments with Hinsdale Associates in Hinsdale, Illinois. "The focus on the markets will be directly on inflation and inflation-related numbers," he said.
The second take on second quarter U.S. gross domestic product data will arrive on Wednesday but the major event will be Friday's payrolls report. The median forecast according to Reuters is jobs growth of 120,000 in August compared with the July increase of 113,000.
The euro overnight hit a record high of 150.07 yen on electronic trading platform EBS before easing to around 149.60 yen, down 0.1 percent.
The senior dealer with a U.S. asset management firm said Japanese investors had been selling heavily above 150 yen and talk had been circulating of an options barrier at 150.20, leading to a bout of profit taking.
Sterling climbed to $1.8985 , up 0.3 percent on the day while the dollar tumbled 0.7 percent to 1.2287 Swiss francs .
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