Wednesday March 28, 2007 - 00:32:38 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar declines amid dip in US consumer confidence
FOREX-Dollar declines amid dip in US consumer confidence
Tue Mar 27, 2007 4:15pm ET17
(Recasts, updates prices)
NEW YORK, March 27 (Reuters) - The dollar fell against the euro and the yen on Tuesday, weighed down by softer-than-expected data on U.S. consumer confidence and persistent worries about a slowing housing market that could lead to interest rate cuts.
By contrast, a strong German business confidence survey reinforced expectations that euro zone rates are headed higher. The benchmark euro zone rate is currently 3.75 percent, while the Federal Reserve's federal funds rate is 5.25 percent.
The divergence in U.S. and euro zone monetary policy has undermined overall sentiment on the dollar, analysts said.
With U.S. data out of the way, investors are now turning their focus to Fed Chairman Ben Bernanke's congressional testimony on Wednesday. Of particular interest will be his view about the wider economic impact of the subprime mortgage sector's problems.
"Consumers are facing a lot of headwinds right now, but consumer confidence could have been a lot worse," said Shaun Osborne, chief currency strategist at TD Securities in Toronto. "We're now waiting for Bernanke tomorrow to see if the Fed tries to correct the impression from last week's statement that the first move will be to ease (rates)."
Late afternoon in New York, the euro was up 0.1 percent at $1.3350 , following the morning's weaker-than-expected consumer confidence report. For details, see [ID:nN27446278].
The data followed Monday's unexpected fall in U.S. new-home sales, which underscored concerns that the housing sector has yet to stabilize.
The euro was bolstered by the Ifo headline index and upbeat comments from ECB Governing Council members Nicholas Garganas and Klaus Liebscher. [ID:nL27163160].
"We have the ECB looking for a hike, and the market is pricing in euro zone rates of 4.0 percent by end-2007, while U.S. rates are seen falling to 4.5 percent. That is going to drive euro/dollar higher," said Rafael Martorell, chief dealer at BNP Paribas in New York.
Garganas said euro zone rates do not seem to have peaked and the ECB may need to act if upside inflation risks appear.
Liebscher, echoing that sentiment, said the euro zone faced inflation clouds at the end of 2007 and close monitoring of the situation was important.
EURO STILL TO GET PAST KEY LEVEL
Despite gains in the euro, the single currency failed to get past a key technical hurdle.
"The euro has to get above the $1.3355/60 level in order to make headway. The fact that the euro is getting stale tells me that the market is well positioned for a weaker dollar," said Manfred Wolf, director of corporate FX sales at HVB Bank in New York.
The dollar slipped 0.2 percent against the yen to 117.87 . Against the Swiss franc, the dollar was down 0.1 percent at 1.2135 .
The Canadian dollar pushed the greenback down 0.4 percent to C$1.1567 , as an election in Quebec knocked the separatist opposition to third place.
In the United States, expectations that the Fed will cut rates in June have increased, particularly after the central bank's statement following its policy-setting meeting last week.
Some analysts believe that while the Fed has acknowledged downside risks to growth, its main concern is still making sure that U.S. inflation remains under control.
Cleveland Federal Reserve President Sandra Pianalto made this clear on Tuesday when she said the Fed was keeping an eye on inflation, because it saw a risk that it will not moderate as much as the central bank had expected.
Â© Reuters 2007. All Rights Reserved.
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