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Dollar Falls With US Rate Support Expected to Wane
Reuters, January 4, 2006
NEW YORK (Reuters) - The dollar slid to two-month lows against the euro and the Swiss franc on Wednesday, undermined by expectations the U.S. Federal Reserve is nearing the end of its rate tightening cycle.
The release during Tuesday's trading day of minutes of the Dec. 13 Federal Open Market Committee meeting signaled that the central bank's 1-1/2 year rate rise campaign was likely near completion.
The Fed raised the benchmark federal funds overnight lending rate by a quarter-percentage point to 4.25 percent at last month's meeting, the 13th straight time it nudged credit costs higher.
The driver for the dollar's decline "fundamentally is the end of the U.S. rate hike cycle. We might spend the first quarter just liquidating dollar positions," said Tim O'Sullivan, trading manager with Gain Capital.
Late in the New York trading session, the euro was up 1.0 percent against the dollar at $1.2125 after climbing as high as $1.2144, its highest level since late October, according to Reuters data. The euro has rallied 2.4 percent against the dollar in the past two days.
Some of the euro's gains Wednesday were technically driven, according to O'Sullivan.
"We are hearing that medium-term players are looking for 2 or 3 percent gains and trying to trigger $1.2150/55 to see if the euro can get up to $1.2175," O'Sullivan said.
Against the safe-haven Swiss franc, the dollar fell to a two-month low of 1.2735 francs. It last traded at 1.2758, down 1.2 percent from late Tuesday. Sterling rose 0.8 percent to $1.7583.
Against the yen, the dollar fell 0.1 percent to 116.02 yen, within striking distance of a two-month low below 115.50 yen.
Last year, the dollar gained around 15 percent versus the euro and the yen as interest rate increases by the Fed at each of its policy meetings since June 2004 lured investors to dollar deposits and assets.
The Fed is widely expected to raise rates for a 14th straight meeting at the end of the month, taking its key rate to 4.5 percent.
But a recent raft of lukewarm U.S. economic data has convinced many market participants that the central bank may think twice about raising rates beyond that, which could put the dollar under further selling pressure.
"U.S. economic numbers are still doing well, but decelerating. The data are not strong enough to force the Fed to keep raising rates," said Brian Rose, currency strategist at Bank of Tokyo Mitsubishi in New York.
NO HIA SUPPORT
The dollar has also lost support it gained toward the end of last year from a one-off tax break to U.S. companies repatriating overseas profits, which expired at the end of December.
"The market went into the new year long dollar and the first piece of news we had was that U.S. rates weren't going to continue going up. A lot of people have been caught out," said Jeremy Hodges, head of FX sales at Lloyds TSB, in London.
"The two main reasons the dollar was up in December have diminished," Hodges added, referring to repatriation flows and the U.S. rate outlook.
A report showing new orders at U.S. factories rose 2.5 percent in November, in line with forecasts, as strong demand for civilian aircraft offset weakness in cars and machinery, had little impact on currency trading.
Markets were also watching December automobile sales because of their impact on retail sales data due later this month, though they had little impact on currency trading, said David Mozina, head of New York foreign exchange strategy at Lehman Brothers.
"People are looking at any interest-rate-sensitive components as a precursor of what's to come," Mozina said.
Reuters, January 4, 2006
NEW YORK (Reuters) - The dollar slid to two-month lows against the euro and the Swiss franc on Wednesday, undermined by expectations the U.S. Federal Reserve is nearing the end of its rate tightening cycle.
The release during Tuesday's trading day of minutes of the Dec. 13 Federal Open Market Committee meeting signaled that the central bank's 1-1/2 year rate rise campaign was likely near completion.
The Fed raised the benchmark federal funds overnight lending rate by a quarter-percentage point to 4.25 percent at last month's meeting, the 13th straight time it nudged credit costs higher.
The driver for the dollar's decline "fundamentally is the end of the U.S. rate hike cycle. We might spend the first quarter just liquidating dollar positions," said Tim O'Sullivan, trading manager with Gain Capital.
Late in the New York trading session, the euro was up 1.0 percent against the dollar at $1.2125 after climbing as high as $1.2144, its highest level since late October, according to Reuters data. The euro has rallied 2.4 percent against the dollar in the past two days.
Some of the euro's gains Wednesday were technically driven, according to O'Sullivan.
"We are hearing that medium-term players are looking for 2 or 3 percent gains and trying to trigger $1.2150/55 to see if the euro can get up to $1.2175," O'Sullivan said.
Against the safe-haven Swiss franc, the dollar fell to a two-month low of 1.2735 francs. It last traded at 1.2758, down 1.2 percent from late Tuesday. Sterling rose 0.8 percent to $1.7583.
Against the yen, the dollar fell 0.1 percent to 116.02 yen, within striking distance of a two-month low below 115.50 yen.
Last year, the dollar gained around 15 percent versus the euro and the yen as interest rate increases by the Fed at each of its policy meetings since June 2004 lured investors to dollar deposits and assets.
The Fed is widely expected to raise rates for a 14th straight meeting at the end of the month, taking its key rate to 4.5 percent.
But a recent raft of lukewarm U.S. economic data has convinced many market participants that the central bank may think twice about raising rates beyond that, which could put the dollar under further selling pressure.
"U.S. economic numbers are still doing well, but decelerating. The data are not strong enough to force the Fed to keep raising rates," said Brian Rose, currency strategist at Bank of Tokyo Mitsubishi in New York.
NO HIA SUPPORT
The dollar has also lost support it gained toward the end of last year from a one-off tax break to U.S. companies repatriating overseas profits, which expired at the end of December.
"The market went into the new year long dollar and the first piece of news we had was that U.S. rates weren't going to continue going up. A lot of people have been caught out," said Jeremy Hodges, head of FX sales at Lloyds TSB, in London.
"The two main reasons the dollar was up in December have diminished," Hodges added, referring to repatriation flows and the U.S. rate outlook.
A report showing new orders at U.S. factories rose 2.5 percent in November, in line with forecasts, as strong demand for civilian aircraft offset weakness in cars and machinery, had little impact on currency trading.
Markets were also watching December automobile sales because of their impact on retail sales data due later this month, though they had little impact on currency trading, said David Mozina, head of New York foreign exchange strategy at Lehman Brothers.
"People are looking at any interest-rate-sensitive components as a precursor of what's to come," Mozina said.
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