Currencies

Friday May 9, 02:34 AM
Forex - U.S. dollar weaker as expectations of rate rises unwound

SYDNEY (Thomson Financial) - The U.S. dollar was trading slightly weaker against major currencies in late morning on Friday as traders continued to unwind expectations that the Federal Reserve might start raising interest rates at the end of the year.

The weakness follows a choppy session overnight when the dollar came under pressure on renewed concerns about the growth outlook for the U.S. economy, while the euro was supported by the European Central Bank signalling that it had no intention to cut interest rates in the near term.

At 10:50 a.m. (0050 GMT) the dollar was trading at 103.74 yen from 103.75 in late trade in New York, while the euro was at $1.5401 from $1.5394 in late New York trade.

Former Federal Reserve Chairman Alan Greenspan added to concerns over growth in a speech in New York.

Greenspan said while the doomsday scenario for the U.S. economy was unlikely to materialise, growth was likely to remain sluggish for an extended period even though the worst of the credit crunch may be over.

Following his remarks and given sluggish economic data, expectations that the Fed might have to lift rates at the year end or early next year to curb inflation waned.

The data included an unexpected fall in U.S. wholesale inventories in March, which prompted economists to cut their GDP growth estimates for the first quarter from the first official estimate of 0.6 percent annualised growth for the quarter.

'Any forecast for a strong and sustained strengthening in the U.S. dollar is vulnerable to the Fed not being likely to hike interest rates in early 2009,' said John Kyriakopoulos, head of currency strategy at NAB Capital Markets.

Andrew Spencer, a foreign exchange analyst at Thomson Reuters IFR Markets, said the market remains skittish, leaving the euro vulnerable despite the hawkish comments from ECB, which left its key rate unchanged at 4.0 percent.

'There was no easy thread overnight, more a session of technical trading, with individual currencies and crosses moving independently,' Spence said.

'The U.S. dollar was generally softer, led by the yen and the yen crosses, with some people attributing the yen strength to U.S. dollar coupon payments.'

In Asian session, traders will be looking for a quiet end to the week, especially as the scenario is unclear at present, he said.

'Our view remains that the euro is heading lower, but as always it will be a bumpy road,' Spencer said.

Sydney 10:50 a.m. (0050 GMT)

U.S. dollar

yen 103.74

Swiss franc 1.0503

Euro

U.S. dollar 1.5401

yen 159.830

Swiss franc 1.6174

pound 0.7876

Pound