Thursday March 22, 2007 - 10:49:13 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar edges off lows as markets digest Fed
FOREX-Dollar edges off lows as markets digest Fed
Thu Mar 22, 2007 6:44am ET14
(Updates price, adds quotes, changes byline)
By Natsuko Waki
LONDON, March 22 (Reuters) - The dollar came off an earlier two-year low against the euro while it steadied versus the yen on Thursday, eroding losses made after the Federal Reserve left rates steady as expected and dropped earlier language about further tightening.
Investors initially sold the dollar as they took the change in the statement as a sign that interest rate cuts from the current 5.25 percent may be looming.
But they are reluctant to push the dollar further down especially as the Fed did say inflation was still its main concern. They are looking ahead to Fed chairman Ben Bernanke and other officials who speak later in the day for more clues on the rate outlook.
"The overall market sentiment is that the Fed moving towards a more neutral bias is good for risky assets. They still think inflation is a predominant concern. While they changed the language, that sentiment hasn't shifted at all," said Laura Ambroseno, currency strategist at Morgan Stanley.
"It will be interesting to see how severe (Fed officials) think the sub-prime (mortgage) issues are and whether they think those are going to have a big impact on the wider economy."
By 1030 GMT, the euro was down around a quarter percent at $1.3355 per euro after hitting a two-year high about $1.3411 in Asia.
The dollar was steady at 117.67 yen , erasing early losses while it was up 0.1 percent at 1.2108 Swiss francs . The euro was steady at 157.30 yen .
The euro was also dragged down by its losses against sterling , which rallied broadly after stronger- than-expected UK retail sales data.
Bernanke speaks at the Fed's credit risk and derivatives conference. Richmond Fed President Jeffrey Lacker, Fed Board Governor Randall Kroszner and Vice Chairman Donald Kohn are all due to speak later in the day.
The high-yielding Australian dollar hit a fresh 10-year high of US$0.8087 . Investors anticipate a widening rate differential between Australia and the United States will underpin the Aussie, as they expect Australia's central bank to raise rates as early as next month.
TOWARDS RATE CUT
Financial futures reacted to show the perception of chances of the Fed cutting interest rates by June briefly rose to 48 percent from 24 percent, before easing to 38 percent.
At the end of Fed's January meeting, the chances of a June cut stood at just 4 percent.
"We have the Fed insuring a soft landing by effectively leaving the door open for a rate cut this year," said Chris Turner, head of FX strategy at ING.
"We've got a gradual dollar bear trend consistent with a soft landing and risk appetite picking up. But activity has to slow further and a consumption slowdown will concern the Fed even more. We are looking for one cut in Q2."
The yen earlier received some support from data showing Japanese land prices rose for the first time in 16 years in 2006 -- further evidence that the nation is emerging from deflation.
Â© Reuters 2007. All Rights Reserved.
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