Tuesday, November 22, 2005


Fed Minutes May Hurt US Dollar

Bloomberg reports the shifting discussion in the Fed minutes may hurt the US dollar. "The dollar may fall for a second day versus the euro on speculation the Federal Reserve is close to ending rate increases that began in June 2004, as the European Central Bank may raise rates for the first time in five years."

"The U.S. currency yesterday had the biggest decline versus the euro in almost a month after minutes from the Fed's last meeting showed some policy makers expressed concern the central bank may go too far in raising borrowing costs. After the minutes, interest-rate futures showed traders pared bets the Fed will raise rates three times by April."

"'In 2006, the risks are to the downside in the economy and the Fed will have to eventually bring its tightening cycle to an end,' said Harvinder Kalirai, a Sydney-based currency strategist at State Street Corp., the world's largest custodian of assets. 'If interest-rate futures build on gains we saw after the Fed minutes, we should see broad dollar weakness.'"

"The dollar traded at $1.1804 against the euro at 9:55 a.m. in Singapore from $1.1814 late yesterday in New York. The U.S. currency was at 118.76 yen from 118.74 yesterday. Japanese financial markets are closed today for a national holiday."

"The Fed discussed the need 'before long'' to change its outlook for the benchmark U.S. interest rate, which it has raised to 4 percent, minutes from the Nov. 1 meeting, released yesterday, showed."

"'Yield is playing an important part in currency Markets,' said Greg Gibbs, senior currency strategist at RBC Capital Markets in Sydney. 'The dollar will give up some of its strength.'"

"A decline in the dollar may be limited after Fed Bank of Richmond President Jeffrey Lacker said policy makers haven't finished increasing interest rates, Reuters reported. 'It is clear we're not done removing accommodation,' Lacker, a voting member of the Fed's policy-setting committee next year, said in an interview yesterday."

"'Dariusz Kowalczyk, senior investment strategist at CFC Seymour Ltd. in Hong Kong said, 'As long as Japan keeps its zero-interest-rate policy, the yen will continue to be under downward pressure. The rate gap is clearly negative for the euro too.'The Bank of Japan has kept its interest rate close to zero since March 2001."

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