Dollar mixed as markets brace for Fed decision
Sunday, 9 December 2007
NEW YORK, Dec 08 (AFP): The dollar traded mixed yesterday as the market braced for next week's Federal Reserve policy meeting and reacted to a US employment report suggesting sluggish growth ahead.
The euro drifted up to 1.4656 dollars at 2200 GMT from 1.4633 dollars late Thursday in New York.
The dollar edged up to 111.65 yen from 111.28.
The Labor Department said the world's biggest economy generated 94,000 new jobs in November after 170,000 in October.
Economists had expected hiring in November would slow to around 70,000 new positions. The report is consistent with slowing economic growth, but not necessarily a harbinger of a severe economic downturn that some analysts have predicted.
David Rodriguez, currency analyst at Forex Capital Markets, expressed surprise that the dollar failed to gain from the report even though it suggested the US economy is holding firm and the Federal Reserve may not cut rates as aggressively as anticipated.
Still, there was some trepidation ahead of Tuesday's Fed policy meeting where traders are widely anticipating a rate cut, most likely a quarter-point, in the federal funds rate of 4.50 per cent.
Rodriguez said a rally in US bond yields suggested reduced fears for the future of domestic economic growth.
The futures market "now shows an approximate 75 per cent chance that the central bank will reduce its key short-term rate by 25 basis points-and not 50 basis points as some had feared," he said.
"A more bullish outlook for US dollar interest rate differentials should have been enough to boost the currency, but forex traders have thus far shown little willingness to bid the greenback higher through end-of-week price action."
He added: "Forex traders' indifference to the developments arguably bode poorly for short-term outlook on the US dollar."
One factor being considered is the apparent division within the Federal Reserve, with chairman Ben Bernanke and some colleagues seemingly in favor of a rate cut but others openly opposed.
"The decision to cut rates 25 or 50 basis points Tuesday is complicated by the fact that growth has not collapsed, but the credit crunch is still ongoing regardless of the White House plan for the housing market," said Andrew Busch at BMO Capital Markets.
"I think the good news for the US economy is going keep the Federal Reserve from cutting 50 basis points and cut just 25. We should see the US equity markets sell off, the US bond market sell off, and the US dollar sell off in sympathy. However, I don't think it will last and I anticipate better than expected economic numbers for the rest of the month."
In late New York trade, the dollar was quoted at 1.1277 Swiss francs from 1.1295 Thursday.
The pound rose to 2.0298 dollars after 2.0278.
The euro drifted up to 1.4656 dollars at 2200 GMT from 1.4633 dollars late Thursday in New York.
The dollar edged up to 111.65 yen from 111.28.
The Labor Department said the world's biggest economy generated 94,000 new jobs in November after 170,000 in October.
Economists had expected hiring in November would slow to around 70,000 new positions. The report is consistent with slowing economic growth, but not necessarily a harbinger of a severe economic downturn that some analysts have predicted.
David Rodriguez, currency analyst at Forex Capital Markets, expressed surprise that the dollar failed to gain from the report even though it suggested the US economy is holding firm and the Federal Reserve may not cut rates as aggressively as anticipated.
Still, there was some trepidation ahead of Tuesday's Fed policy meeting where traders are widely anticipating a rate cut, most likely a quarter-point, in the federal funds rate of 4.50 per cent.
Rodriguez said a rally in US bond yields suggested reduced fears for the future of domestic economic growth.
The futures market "now shows an approximate 75 per cent chance that the central bank will reduce its key short-term rate by 25 basis points-and not 50 basis points as some had feared," he said.
"A more bullish outlook for US dollar interest rate differentials should have been enough to boost the currency, but forex traders have thus far shown little willingness to bid the greenback higher through end-of-week price action."
He added: "Forex traders' indifference to the developments arguably bode poorly for short-term outlook on the US dollar."
One factor being considered is the apparent division within the Federal Reserve, with chairman Ben Bernanke and some colleagues seemingly in favor of a rate cut but others openly opposed.
"The decision to cut rates 25 or 50 basis points Tuesday is complicated by the fact that growth has not collapsed, but the credit crunch is still ongoing regardless of the White House plan for the housing market," said Andrew Busch at BMO Capital Markets.
"I think the good news for the US economy is going keep the Federal Reserve from cutting 50 basis points and cut just 25. We should see the US equity markets sell off, the US bond market sell off, and the US dollar sell off in sympathy. However, I don't think it will last and I anticipate better than expected economic numbers for the rest of the month."
In late New York trade, the dollar was quoted at 1.1277 Swiss francs from 1.1295 Thursday.
The pound rose to 2.0298 dollars after 2.0278.