Dollar Rises Before Fed Meeting; Yen Falls As Carry Trade Resumes
Posted on 19. Mar, 2007 by admin in Forex News
By Wanfeng Zhou
The dollar rose against other major currencies Monday, rebounding from last week’s losses as investors await an interest-rate decision from the Federal Reserve later in the week.
The Federal Open Market Committee, the Fed’s policy-setting panel, starts its two-day policy meeting on Tuesday. Economists believe the Fed will almost certainly keep monetary policy on hold for the sixth consecutive meeting, maintaining its federal funds rate target at 5.25%. The Fed will announce its decision at 2:15 p.m. Eastern on Wednesday.
“Traders will monitor the statement for any acknowledgement of the subprime fiasco,” said Boris Schlossberg, senior currency strategist at DailyFX.com, in a note. “However, given the Fed’s penchant for hawkishness the FOMC is likely to stress the increases in the latest batch of inflationary data.”
In early New York trading, the dollar was quoted at 117.37 yen, compared with 116.81 yen late Friday. The euro stood at $1.3302, compared with $1.3308.
The British pound traded at $1.947, compared with $1.9418. The dollar changed hands at 1.2105 Swiss francs, compared with 1.2076 francs.
The euro fetched 156.16 yen, compared with 155.47 yen.
At 1 p.m. Eastern, traders will review the latest home builders’ index. The report will be closely viewed following the slump in the housing market and worries about whether subprime mortgage woes will spread to the wider market.
The U.S. currency fell across the board Friday, touching three-month lows against the euro and the Swiss franc, on concerns over the outlook for the U.S. economy and a decline in U.S. stocks.
Elsewhere, the yen dropped against the dollar, euro and other high-yielding currencies.
Speculation that the Bank of Japan on Tuesday will leave rates unchanged and signal future rate hikes will remain gradual encouraged traders to reestablish carry trade positions — in which speculators borrow the yen at low costs and reinvest in high-return currencies.
In other trading, Slovakia announced late Friday that the Slovak koruna’s central parity rate had been revalued by 8.5%. The new parity is now at 35.4424 versus the euro, from 38.455.
Over the weekend, China hiked its interest rates by 0.27 percentage point for the third time in less than a year to retrain credit and investment and promote balanced growth.
The People’s Bank of China raised its one-year deposit rate to 2.79% and its lending rate to 6.39%.
