Dollar Heads for Weekly Advance on Less-Than-Expected Fed Cut
March 21, 2008 – 12:27 amSource: Bloomberg
March 21 (Bloomberg) — The dollar headed for a weekly advance against the yen and the euro after the Federal Reserve lowered interest rates less than expected, helping preserve the appeal of U.S. assets.
The dollar rebounded from a record low against the European currency after Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. reported better-than-expected earnings, easing speculation subprime losses are spreading. Declines in gold, oil and other commodities pushed the exchange rates of raw-material producers from Australia to Norway down versus the U.S. currency.
“The dollar is enjoying a bounce,” said Hideki Amikura, deputy general manager of currencies at Nomura Trust and Banking Co. in Tokyo, a unit of Japan’s largest brokerage. “The Fed is working to restore confidence. U.S. investment bank earnings weren’t as dire as some predicted.”
The dollar traded at $1.5419 per euro, as of 1:10 p.m. in Tokyo, set for a 1.6 percent gain in the past five days, the first weekly advance over a month. The dollar bought 99.55 yen, little changed from late yesterday and up 0.5 this week, the first weekly gain since Feb. 15. The yen rose 1.2 percent this week to 153.44 per euro, touching the strongest since August.
Currency moves may be exaggerated today as trading volume will be less than half of normal due to public holidays in the U.S., the U.K. and other financial markets, said Tsutomu Soma, a bond and currency dealer in Tokyo at Okasan Securities Co.
The dollar may rise to 101 yen in the next few days, Amikura forecast.
The dollar bought 5.2639 kroner from 5.2630 late yesterday, when it touched the highest since Feb. 26. The U.S. currency was up 3.1 percent against the krone this week. Australia’s dollar was little changed at 90.22 U.S. cents, close to a five-week low and on course for a 4 percent decline this week.
Fed Moves
The Fed cut on March 18 its target lending rate by three- quarters of a percentage point to 2.25 percent, saying “measures of inflation expectations have risen.” The cut was smaller than the 1 percentage point traders had expected with 90 percent certainty before the meeting, according to futures traded on the Chicago Board of Trade.
The tumble in commodity prices and the dollar’s rebound gained momentum after the Fed’s warning on rising prices sapped demand for oil and gold as a hedge against accelerating inflation.
`Calm Look’
“The dollar’s rise against commodities currencies is likely to extend into next week,” said Soma. “Traders took a calm look at their bets and realized they can’t continue to buy commodities in this environment.”
The Australian dollar may fall to 89 U.S. cents in a few days, Soma forecast.
Goldman Sachs, Lehman Brothers and Morgan Stanley all said this week first-quarter profits fell less than analysts’ estimates. Banks around the world have posted $195 billion in writedowns and credit losses, according to Bloomberg data, due to rising delinquencies on mortgages to U.S. homeowners with poor credit.
The U.S. Dollar Index traded on ICE Futures in New York, which compares the currency with those of six trading partners, rose for a third day, to 72.8 from 72.144. The gauge fell to a record 70.698 on March 17, the same day the dollar fell to a all-time low against the euro.
