View Full Version : U.S. Dollar Hovers Near All-Time Low Vs. Euro On Chances Of Fed Rate Cut

10-26-2007, 08:40 AM
US dollar hovers near all-time low vs euro on chances of Fed rate cut


10.26.07, 2:33 AM ET

HONG KONG (Thomson Financial) - The US dollar hovered near its all-time low against the euro in Asian early afternoon trade Friday as investors bet the Federal Reserve will cut interest rates next week, making dollar-denominated assets less attractive.

'Essentially, the dollar is under pressure as a result of the recent shift in Fed expectations,' said Thomas Lam, treasury economist at United Overseas Bank (other-otc: UOVEY.PK - news - people ). 'US data came in on the downside, so the market is now factoring in an interest rate cut this month.'

At 1.00 pm (0500 GMT), the euro was at 1.4336 dollars, up from 1.4327 in Sydney in the morning. The euro rose to an all-time high of 1.4348 dollars on Oct 22.

The dollar was at 114.26 yen, up from 114.12 yen this morning.

The Fed may cut its key rates by a quarter of a percentage point to 4.5 percent on Oct 31, said Lam, who previously expected that the rate reduction would happen in December.

Lower interest rates may prompt investors to sell their dollar-denominated holdings such as Treasuries and other fixed-income securities, weakening the greenback.

A spate of weak economic data from the US and Merrill Lynch (nyse: MER - news - people )'s announcement of a 7.9 billion US dollar write-down of mortgage-related securities added to worries that the US economy will expand at a slower pace in coming months.

Overnight the US government said durable goods orders unexpectedly fell 1.7 percent in September, after dropping 5.3 percent in August. The National Association of Realtors said sales of existing homes declined 8 percent in September.

'Our initial forecast was for the [Federal Open Market] Committee to maintain the target Fed funds rate at 4.75 percent in the absence of any abrupt and severe adjustments in financial markets,' Lam said. 'The abrupt and uneven reactions in financial markets over the past one week or so appear to have reawakened the specter of uneasiness ahead of the Oct 30-31 Fed meeting.'

Market talk that AIG, the world's largest insurer, could also be facing huge write-downs and record high crude oil prices were also weighing on the dollar.

Elsewhere, the Australian dollar surged to fresh 23-year highs against the US dollar overnight in anticipation of an interest rate hike in Australia in early November. The Aussie touched 90.91 US cents before settling around 90.90.

'The combination of weak US data, rising expectations of aggressive Fed easing and a stable, albeit fragile, Wall Street is a perfect recipe for euro-US dollar and Australian dollar-US dollar strength,' said John Noonan, an analyst at Thomson IFR.

Hong Kong 1.00 pm (0500 GMT)

US dollar

114.26 yen

1.1645 sfr


1.4336 usd

163.77 yen

1.6695 sfr

0.6984 stg


2.0527 usd

234.46 yen

2.3901 sfr

Australian dollar

0.9105 usd

0.4437 stg

104.03 yen

New Zealand dollar

0.7642 usd