FOREX - DOLLAR STEADY IN AFTERNOON TRADE OF FOMC MEETING

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Thomson Financial News
Forex - Dollar steady in afternoon trade ahead of FOMC meeting, economic data
06.23.08, 2:35 AM ET

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HONG KONG (Thomson Financial) - The U.S. dollar was steady in afternoon trade in Asia on Monday as investors preferred to stay on the sidelines ahead of this week's rate-setting meeting of the Federal Reserve and a string of economic data from the world's largest economy.

'There is very little news that the market is able to digest at this stage. There is not much happening at the moment to move the currency market in any direction,' said David Mann, currency strategist at Standard Chartered (other-otc: SCBEF.PK - news - people ) Bank in Hong Kong.

'There was no U.S. data last Friday, so the market is pretty quiet today.'

The Federal Open Market Committee (FOMC) will meet on June 24-25 and is widely anticipated to keep key interest rates unchanged, pausing after seven rate cuts that started in September. Fed Chairman Ben Bernanke this month highlighted concerns about rising inflationary pressures stemming from record high oil prices and a weak dollar.

NOTE: FOMC PLAYS A VITAL ROLE IN FOREX INDUSTRY.

The United States is scheduled to release home sales data on June 25 and 26, consumer spending on June 27 and durable goods orders on June 25. The figures will give investors more clues about the state of the U.S. economy and whether the Fed will hike interest rates by the end of this year as Bernanke and other Fed officials had earlier suggested.

At 1:00 p.m. (0500 GMT), the euro was trading at $1.5607 from $1.5613 in Sydney this morning. The dollar was quoted at 107.40 yen from 107.34 yen.

'The market may not be moving much until the Fed's decision and the statement is out,' said Mann. 'After the Fed decision, which is the biggest even this week, investors will be watching out for the durable goods and spending data.'

Most analysts expect consumer spending to go up after the U.S. government's $50 billion tax rebate bonanza that gave Americans more money to shop or invest.

But Mann said the positive impact of the tax rebates on the economy will be temporary.

The post-FOMC meeting statement may highlight policymakers' continued worries about rising consumer prices, said Thomas Lam, senior treasury economist at United Overseas Bank (other-otc: UOVEY.PK - news - people ).

'In general, the accompanying June statement would likely evolve to indicate that the near-term growth outlook has become incrementally less lop-sided and that the current inflation environment could complicate the policy debate,' Lam said.

Since it began easing rates in September until its last meeting in April, the FOMC has lowered rates by a cumulative 325 basis points to 2 percent, the lowest since December 2004.

The rate cuts, which were made while the European Central Bank (ECB) has maintained its benchmark rate at a six-year high of 4 percent, caused the dollar to plunge to record lows against the euro and to multi-year lows versus the yen.

Standard Chartered's Mann does not expect the Fed to hike rates this year and is predicting that U.S. rates will be maintained for the rest of the year.

The ECB will likely hike its rate in July, he said.

'It's possible that there are more rate hikes (in the eurozone area) after July but that's not our central case scenario,' Mann said.

John Noonan, a senior foreign exchange analyst at Thomson IFR Markets, said the FOMC meeting is widely expected to produce a 'no-change' verdict, but the accompanying statement will be the key factor that will guide the currency market this week.

'If the FOMC statement is not hawkish or only signals soft tightening in the months to come and makes no mention of the U.S. dollar, it could be a tough week for the greenback especially with the ECB expected to hike 25 basis points when they meet on July 3,' he said.

NOTE: FOMC'S ANALYSIS IS VERY IMPORTANT TO FOREX INDUSTRY.

NAB Capital Markets head of currency strategy John Kyriakopoulos shared Noonan's and Mann's views.

'We think the Fed is done cutting rates and the next move will be a hike although perhaps not until next year, unless the recovery in U.S. growth proves stronger than expected,' said Kyriakopoulos.

If the Fed statement doesn't signal interest rates hikes in the months ahead, the dollar will decline, Kyriakopoulos said.

Hong Kong 1:00 p.m. (0500 GMT)

U.S. dollar

yen 107.40

Swiss franc 1.0360

Euro

U.S. dollar 1.5607

yen 167.66

Swiss franc 1.6176

pound 0.7911

Pound

U.S. dollar 1.9725

yen 211.88

Swiss franc 2.0438

Australian dollar

U.S. dollar 0.9555

pound 0.4843

yen 102.64

jun.ebias@thomsonreuters.com

.

je/ng

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