Dollar Stalls Vs Rivals Ahead of Fed

Mon Aug 9, 2004
By Naomi Tajitsu

TOKYO (Reuters) - The dollar stalled against major rivals on Tuesday ahead of a U.S. Federal Reserve meeting that was expected to result in higher U.S. interest rates.

Expectations were running high that the Federal Open Market Committee (FOMC) would raise rates by a quarter of a percentage point to 1.5 percent after it meets later in the day.

While Friday's disappointing employment figures caused some to speculate that the Fed could forego raising rates this month, the vast majority of analysts were confident recent weak data would not get in the Fed's way.

"The market has priced in a 100 percent chance of a 0.25 percentage point rate rise, so it's just a matter of how this is going to affect the dollar," said Junya Tanase, forex strategist at JP Morgan Chase Bank.

He added that the meeting would not likely result in a clear trading direction for the U.S. currency.

With no surprises expected from the FOMC's decision, the market was preparing to pick apart its statement for hints of future rate action.

At 8:47 p.m. EDT Monday, the dollar fetched 110.66 yen, little changed from 110.61 in late New York trade.

It also hardly moved against the euro at $1.2265 versus $1.2274.

The dollar eased against the yen and the euro after the Fed raised rates to 1.25 percent from one percent in a widely anticipated move at the end of June.

The FOMC's decision to continue raising rates at a "measured" pace was seen as taking some of the shine off higher rates.

YEN PRESSURED

Many market players brushed off talk that the Fed could refrain from raising rates on Tuesday, given Fed chief Alan Greenspan's recent bullish statements on the U.S. economic recovery along with warnings of inflationary pressures.
Analysts said that backing away from this position would simply shock the market -- seen as the last thing the Fed wants to do.

Rising oil prices, which touched a record high just under $45 per barrel in New York, pressured the yen, as they did during overseas trading.

Some Tokyo analysts said that many foreign dealers were reluctant to look beyond Japan's deep dependence on oil imports in determining price action.

JP Morgan's Tanase said that the yen in fact benefitted from higher oil prices in the late 1990s.

"(At that time) a rise in global demand for oil pointed to an improvement in the Japanese economy, which was good for the yen. It also pointed to an improvement in the global economy, which was also good for the yen."

He said that this hadn't been the case in the latest spike up in oil prices, adding that it was a matter of time before the fallout from soaring prices also became evident in other currencies.

Also on Tuesday, the Bank of Japan (BOJ) is widely expected to end its two-day policy meeting with its ultra-loose monetary policy intact and its economic assessment unchanged.

The market will look at the extent to which policymakers address rising oil prices, and focus on comments from BOJ Governor Toshihiko Fukui, who in July raised eyebrows after he was seen to imply that the BOJ could end its monetary policy sooner than expected.

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