Dollar Falls Sharply In Asian Trading

Dollar Falls Sharply in Asian Trading

http://news.moneycentral.msn.com/pro...417&ID=4159894

4/17/2006

TOKYO (AP) - The dollar fell sharply against the euro and yen in Asia Monday on a media report suggesting that China might reduce its purchases of U.S. Treasury holdings, and amid speculation that U.S. interest rates may have peaked.

The U.S. dollar fell as low as 118 yen at one point before trading at 118.28 yen in Tokyo midafternoon, down 0.36 yen from late Friday in New York. The euro rose to $1.2178 from US$1.2108.

Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted in a Chinese state-owned newspaper Monday as saying that China should cut the amount of U.S. Treasury bonds it buys.

China has $875.1 billion in foreign currency reserves, much it in Treasuries. A reduction in that amount could undermine the dollar.

Sentiment toward the dollar also took a hit after an article in The Wall Street Journal said not all Fed officials are convinced that much more monetary tightening is required, traders said.

Some dealers say the euro could rise as high as $1.2240 in Asia on the dollar-selling momentum generated by the reports.

The reaction to the reports underlines sensitivity to U.S.-China relations especially ahead of a meeting in Washington between U.S. Presidents George W. Bush and Chinese leader Hu Jintao later in the week, traders said. China has the world's largest foreign exchange reserves and is a major investor in U.S. Treasuries.

The Federal Reserve boosted a key interest rate, the federal funds rate, to a five-year high of 4.75 percent, and many analysts expect another rate increase on May 10, the Fed's next meeting.

The European Central Bank has also been raising interest rates. Concerns that more money is flowing around the EU economy led the ECB to raise rates for the first time in five years last December from 2 percent to 2.25 percent, with a second hike in March to 2.5 percent.

The Bank of Japan has said it will start to raise interest rates, although they remain at zero for now -- a measure the central bank took to encourage lending during economic stagnation.

But focus on central banks has still tended to boost the dollar because interest rates in the U.S. are still higher.

The dollar was mixed against other regional currencies, rising to 51.30 Philippine peso from 51.28 the previous day, but slipping to 1.6032 Singapore dollar from 1.6083. It also declined to 37.92 Thai baht from 38.050.