Why don't we simply jump-start the economy 1 more time?
And if not, why not? -g-
Dollar Falls Against Euro on Fed Interest Rate-Cut Speculation
June 16 (Bloomberg) -- The dollar, trading close to a record low against the euro, fell on expectations the Federal Reserve will lower its benchmark interest rate next week, curbing demand for assets denominated in the U.S. currency.
Investors are selling the U.S. currency on expectations the Fed will cut its rate from 1.25 percent when it meets on June 24- 25 in a bid to accelerate growth in the world's biggest economy. By contrast, the European Central Bank's rate is at 2 percent.
``People are increasingly pricing in a 50 basis-point cut from the Fed and that's hurting the dollar,'' said Ian Stannard, a currency analyst at BNP Paribas in London. ``We could see the euro move up to $1.2050 in the next couple of weeks.''
The dollar dropped as low as $1.1930 per euro and was trading at $1.1898 at 11:15 a.m. in London from $1.1837 late Friday. The dollar's all-time low against the European common currency is $1.1933, which it reached on May 27.
All 22 bond-trading firms that deal directly with the Fed expect it to cut its target rate. The dollar has slumped by more than a fifth against Europe's common currency in the past 12 months on concern U.S. economic growth isn't rebounding fast enough.
U.S. consumer confidence unexpectedly dropped by the most in eight months in June as rising unemployment adds to doubts about the pace of economic growth in the second half of the year.
Investors' search for higher yields also pushed the Canadian dollar to 75 U.S. cents for the first time since November 1996. The Canadian dollar has gained 16 percent against its U.S. counterpart this year. Canada's benchmark lending rate is 3.25 percent.
Fed Chairman Alan Greenspan and other governors have signaled they are concerned about a slowdown in inflation. Further evidence of sluggish growth may come in a report on manufacturing in the New York area in June that's due at 1 p.m. London time.
Growth
Since the end of the war in Iraq, investors have focused on trying to gauge the pace of growth in the U.S. economy. Almost three-quarters of 34 traders, analysts and investors from Tokyo to New York surveyed by Bloomberg News on Friday recommended buying or holding the euro against the dollar this week.
``A half point cut by the Fed would be a negative because it would mean that future economic numbers will be worse rather than better,'' said Paul Chertkow, London-based head of global currency research at Bank of Tokyo-Mitsubishi Ltd. The euro may rise as high as $1.25, he said.
Yen
The yen fell in London trading against the euro and the dollar after Japan signaled the central bank will sell its currency to stem gains that threaten to hurt exports.
The Japanese currency weakened to 117.54 to the dollar from 117.42 late Friday. It declined to 139.73 per euro, from 139.39.
``I can't see the yen in any condition to strengthen in the mid-term,'' Zembei Mizoguchi, Japan's vice finance minister for international affairs, told reporters in Tokyo. ``Japan is closely watching the currency markets.''
The Japanese currency's advance against the dollar in the past 12 months threatens the ability of the world's second-largest economy to lift exports and avert a fourth recession in a decade. The Bank of Japan sold a record 3.98 trillion yen ($33.8 billion) in May to keep its currency from strengthening.
Last Updated: June 16, 2003 06:30 EDT
quote.bloomberg.com |
