I jumped off NZD last night. Still holding Yen.
Fed set to raise interest rates
All eyes on Greenspan: Traders watch the chairman on television
The US Federal Reserve is expected to raise interest rates by a quarter of a percentage point later on Tuesday.
The central bank's aim is to curtail inflationary pressures without getting in the way of economic growth.
In June, the Fed raised interest rates to 1.25%, the first upward move for four years.
High oil prices and a changing economic picture have, however, raised questions as to whether the central bank will raise rates again this year.
The Federal Open Market Committee (FOMC) meets at 1300 GMT and is set to announce its decision at 1815 GMT.
When the bank raised interest rates in June, it was widely perceived to be the first of a series of gradual moves, aimed at keeping inflation in check and sustaining economic growth.
Federal Reserve chairman Alan Greenspan lent support to this view when he gave a positive report on the US economy before the Senate's banking committee.
His statement acknowledged that growing consumer demand had led to a rise in inflation - but also said that he expected growth would continue in the second half of the year.
Steady hand?
But the evolving economic picture is now lengthening the odds on another rise at the next meeting on 21 September.
Friday's US unemployment report raised doubts about the strength of the economy and, in turn, about the need to make credit more expensive.
Economists had expected 200,000 jobs to be created in July, but the report showed that only 32,000 jobs had been created. Unemployment dropped to 5.5%, from 5.6% in June, its lowest level since October 2001.
The figures could be seen as a temporary setback, but they have also been perceived as bad news for President George Bush ahead of Presidential elections later this year.
Expensive energy
Oil prices have also risen dramatically, hitting record highs on fears of shortages and low production.
"We've now seen two of the Fed's assumptions proved wrong," said Lynn Reaser, economist at Banc of America Capital Management, who is predicting a rise on Tuesday.
"Oil prices are staying high and job growth has not resumed.
"Given the mind set in the markets that another increase is coming, the Fed is unlikely to wish to disrupt that expectation at this stage."
The focus is already shifting from Tuesday's meeting to what the Federal Reserve plans to do at its next meeting and later in the year.
Typically, the Federal Reserve outlines the balance of risks to the economy in a statement after the FOMC meeting and it is here that analysts will find clues as to the future level of interest rates. |
