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Dollar rises for a second say as signals indicate the worst is over

Wed, May 14 2008, 12:34 GMT
by Benny Menashe

Finotec Group Inc.

The dollar gained momentum against the euro before a government report today that will probably show no slowdown in U.S. inflation, which will be an indication for traders that the Federal Reserve will stop cutting borrowing costs next month and keep the current interest rate as it is at 2%. The currency advanced for a second day as the yield spread between Treasuries and German bunds narrowed to the least in more than two months after a report yesterday showed U.S. retail sales excluding autos climbed more than the forecast in April.

``A strong consumer price index will reinforce expectations the Fed has finished rate cuts,'' said Takashi Miyachi, a senior currency dealer at Mizuho Corporate Bank Ltd., a unit of Japan's third-largest financial group. ``With the markets focusing on fundamentals more and more, that will support the dollar.'' The dollar is currently trading at $1.5414 per euro as of 7:42 am, GMT, from $1.5474 in New York yesterday. It touched a record low of $1.6019 on April 22. The greenback is currently trading at 105.15 yen from 104.75 yesterday. The euro slid to 161.96 yen from 162.10 yen. The U.S. currency may rise to $1.5380 a euro and 106 yen today.

The sterling fell to $1.9433 after dropping as much as 0.8 percent yesterday to $1.9419, the lowest since Feb. 21. The news came on the back of London's property market which had the most widespread price declines last month in over 14 years, while inflation in April was the highest since 2002. The Bank of England held its target lending rate at 5 percent on May 8. The GBP USD is currently trading at 1.9406 as of 7:54 am, GMT and reached a low of 1.9389 today. JPMorgan Chase & Co. pushed back its forecast for a rate cut until July or August from a previous prediction of June because of inflation. Royal Bank of Scotland Group Plc predicted the BOE will keep rates on hold this year, a change from the bank's previous forecast for a cut in July. ``A combination of the outlook for a weakening economy and high inflation brings stagflation and difficulty for central bank policy management,'' Masafumi Yamamoto, head of foreign exchange strategy for Japan at Royal Bank of Scotland in Tokyo, wrote in a research note today. ``We maintain a bearish forecast.''

Today's Economic Events

Published on  Wed, May 14 2008, 12:40 GMT

Archive

• The Euro falls as the Europe braces for the crunch
  Published On Mon, Oct 6 2008, 11:42 GMT
• Dollar down before employment data releases
  Published On Fri, Oct 3 2008, 11:12 GMT
• Dollar up on Bailout Plan approval
  Published On Thu, Oct 2 2008, 11:07 GMT
• The Dollar up against euro and sterling
  Published On Mon, Sep 29 2008, 11:44 GMT
• Market uncertainty as U.S bailout talks stall
  Published On Fri, Sep 26 2008, 10:44 GMT

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