FOREX ASIA
Dollar slips as traders brace for Fed rate cut
Agence France-Presse
First Posted 11:09:00 01/30/2008
TOKYO -- The dollar slipped against the yen in subdued Asian trade Wednesday with most players waiting on the sidelines ahead of a key interest rate decision by the US Federal Reserve, dealers said.
The dollar slipped to 106.87 yen in Tokyo morning trade from 107.07 in New York late Tuesday.
The euro eased to $1.4761 from $1.4774, and to 157.74 yen from 158.22.
Currency markets took a breather as global share prices showed signs of stabilizing ahead of the US rate decision, dealers said.
"Investors don't want to actively adjust their positions ahead of a key Fed meeting," said Kenichi Yumoto, vice president of currency trading at Societe Generale.
The dollar had gained some ground overnight after better-than-expected US durable goods orders.
But buying support was limited by a sharp downgrade by the International Monetary Fund (IMF) to its economic growth forecast for the United States, which is now expected to expand 1.5 percent in 2008, instead of 1.9 percent.
The global economy is poised to grow 4.1 percent this year, down 0.3 percentage points from a previous estimate, the IMF report said.
The IMF "provided a reminder that the sub-prime mortgage market meltdown will have global consequences," NAB Capital strategist John Kyriakopoulos wrote in a note. "We still expect that a sharp US slowdown and the credit crunch will weigh on global economic growth."
Markets views are divided on how much the Federal Open Market Committee (FOMC) will cut rates at the end of a two-day meeting on Wednesday.
Although the positive orders data raised speculation the US central bank might avoid an aggressive cut, stock markets are nonetheless crossing their fingers for a hefty reduction of 50 basis points to 3.0 percent, dealers said.
"If the Fed cuts only by 25 basis points, it would prove to be very disappointing," said Societe Generale's Yumoto. "On the other hand if the Fed makes a 50 basis point cut, markets would welcome the action."
Either way the greenback is expected to be sold off on the decision as lower interest rates translate into lower rates of return on dollar-denominated financial assets, he predicted.
The Fed meeting comes a week after the central bank made an emergency rate cut to ward off recessionary risks, slashing the fed rate by a record three-quarters of a percentage point, to 3.5 percent.
Traders were also weighing news that the US House of Representatives on Tuesday approved an economic stimulus package worth an estimated $150 billion to shore up US growth.
Senate leaders meanwhile late Monday proposed their own version of an economic stimulus program, threatening to delay the compromise plan agreed by President George W. Bush's administration and the House.
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