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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: patron_anejo_por_favor who wrote (25876)	3/18/2005 1:47:17 AM
From: mishedlo	Respond to of 116555

The Incredible Shrinking Dollar globaleconomicanalysis.blogspot.com

To: patron_anejo_por_favor who wrote (25876)	3/18/2005 2:32:45 AM
From: mishedlo	Respond to of 116555

FOREX-Dollar inches higher ahead of Fed policy meeting Friday, March 18, 2005 7:18:22 AM reuters.com By Hideyuki Sano TOKYO, March 18 (Reuters) - The dollar edged higher on Friday, extending the previous day's gains as investors pondered whether an upcoming Federal Reserve policy meeting would point to interest rates climbing at a faster pace. With the market factoring in a quarter percentage point U.S. rate rise at Tuesday's meeting, attention has turned to whether the term "measured" when referring to the pace of monetary tightening will be omitted from the post-discussion report. "The word 'measured' is going to be the focus of traders all around the world," said a dealer at a European brokerage. If the term were dropped, that would heighten anticipation of the U.S. central bank stepping up the pace of its interest rate rises -- a potentially dollar-positive development, traders say. Rising U.S. rates are likely to bring back some of the funds that have poured into assets that have boomed this year, including stocks in other countries and commodities. "I think the dollar is in a general recovery trend as U.S. interest rates continue to rise," said Kenichi Hirayama, chief strategist at Tokio Marine Asset Management. By 0640 GMT, the dollar fetched around 104.80 yen <JPY=>, versus 104.53 yen in late U.S. trade and near Thursday's high of 104.90 yen. The euro eased to around $1.3365 <EUR=> from $1.3375 in late U.S. trade. The dollar rose about 0.4 percent against the yen and 0.3 percent versus the euro on Thursday, boosted by safe-haven flows into U.S. Treasuries and the belief that Wednesday's sell-off on weak U.S. current account deficit data may have been overdone. However, the dollar's gains were muted by a surprisingly weak business activity report from the Philadelphia Federal Reserve. CARRY TRADES After being sold in the past month, the dollar steadied this week, partly due to data showing that the United States was able to fund its massive current account deficit -- a key factor in the dollar's three-year decline. Some traders also said that speculators such as hedge funds have started to unwind dollar carry trades, in which they borrowed the dollar to buy high-yielding assets in other countries. Emerging currencies that had been coveted earlier this year -- such as the Polish zloty <PLN=>, Turkish lira <TRY=> and South African rand <ZAR=> -- have slipped from their recent peaks in the past few weeks. "It's not that developing countries' economies have deteriorated. As the Fed has gradually raised rates, the cost of carry trades has risen, making it no longer profitable," said Hirayama of Tokio Marine Asset. The Fed has raised rates by a quarter percentage point at six straight meetings, taking the key U.S. rate to 2.5 percent. Some in the market expect U.S. rates to rise as high as 4 percent by the year-end, though the pace of increases might be tempered by Fed chief Alan Greenspan's desire to sail a steady ship before his term ends next January. "Greenspan doesn't want to tarnish his legacy, so he will want to make the market as normal as possible," the brokerage dealer said. Greenspan is due to speak at 1700 GMT, though he is not expected to comment on the economy or interest rates so near to the policy meeting. The market hardly budged on comments from Japanese Finance Minister Sadakazu Tanigaki that Tokyo has no plan to change the currency composition of its massive foreign reserves. Worries that central banks may diversify their reserves away from the dollar have dogged the dollar in the past month.