Wednesday March 21, 2007 - 09:48:13 GMT
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FOREX NEWS-Dollar rises vs yen, major focus seen on FOMC
FOREX-Dollar rises vs yen, major focus seen on FOMC
Wed Mar 21, 2007 4:55am ET143
(Updates price, adds quotes, changes dateline, byline)
By Natsuko Waki
LONDON, March 21 (Reuters) - The dollar rose against the yen, reducing losses made the previous day after China's comments on reserves, as investors look to the Federal Reserve's interest rate decision and the policy statement due later.
The Fed is expected to leave rates at 5.25 percent in its first meeting after equity market turmoil earlier this month. Investors are keen to hear what the central bank has to say given growing concern about the U.S. subprime mortgage sector and expectations for interest rate cuts this year.
"Most of the focus is on the Fed. They will highlight that the the risks or uncertainty surrounding the U.S. economic outlook have increased. If they communicate this uncertainty it will be negative for the dollar," said Johan Javeus, currency strategist at SEB in Stockholm. "On balance this meeting will bring us closer to a rate cut."
The dollar fell on Tuesday after a magazine quoted China's central bank governor Zhou Xiaochuan as saying that the country did not intend to accumulate FX reserves further, a remark many analysts say was unlikely to represent a major change in policy.
"Chinese authorities need to do something about a rapid increase in reserves but the market is fairly resilient unless (authorities present) something very tangible," Javeus said.
By 0830 GMT the dollar was up 0.3 percent at 117.61 yen . It was steady at $1.3310 per euro
The euro was up 0.2 percent at 156.54 yen .
Sterling was steady against the dollar while it rose versus the euro before Chancellor of the Exchequer Gordon Brown presents his 11th budget later.
European Central Bank President Jean-Claude Trichet said in testimony before the European Parliament's Committee on Economic and Monetary affairs that the euro zone's economic growth remained in place and the medium-term price outlook was subject to upside risks.
CHINA AND RESERVES
Zhou was quoted by the Emerging Markets magazine, a Euromoney publication, as saying "many people say that foreign exchange reserves in China are (already) large enough. We do not intend to go further and accumulate reserves."
The comments, published early during U.S. trading, undermined the dollar.
China's $1 trillion dollar worth of FX reserves are already the world's largest and have been growing at a brisk pace as China buys foreign currencies to keep the yuan from rising beyond the top of a tight trading band.
"We would not read too much into these comments given the possibility they were taken out of context. We do not expect China to abandon FX intervention and its tight currency management anytime soon," JP Morgan said in a note to clients.
Rallying U.S. equities suggested markets were pricing in a soft Fed stance -- the Dow Jones industrial average <.DJI> gained half a percent on Tuesday and is up nearly 3 percent from last week's trough -- although some analysts said they could be surprised.
Supporting that view, data on Tuesday showed U.S. housing starts in February were well above expectations.
"Perhaps the FOMC won't be as dovish as the market is hoping for," said Ashley Davies, currency strategist at UBS in Singapore.
Â© Reuters 2007. All Rights Reserved.
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