Currencies

Wednesday May 14, 02:21 AM
Forex -U.S dollar eases in Sydney trade, consolidating after rate cut hopes fade

SYDNEY (Thomson Financial) - The U.S. dollar was trading slightly easier against major currencies but consolidating at higher levels against major currencies in Sydney trade on Wednesday as hopes of further interest rate cuts by the Federal Reserve faded.

At 10:10 am (0010 GMT) the dollar was at 104.71 yen, down from 104.73 in late trade in New York on Tuesday, while the euro was at $1.5478, up from $1.5475 late in New York.

The dollar gained support from a number of Fed officials all voicing heightened concerns over building inflation pressures, which were interpreted to mean that the central bank will not be cutting its funds target rate further next month.

'The prospect of a broad and sustained U.S. dollar recovery has been revived due to the reinforced perception that the Fed is on hold and is now focusing on inflation pressures,' said John Noonan, a senior foreign exchange analyst at Thomson IFR Markets.

Noonan said the shift in Fed focus is giving the optimists some assurance that the 'worst is over' even though Federal Reserve Chairman Ben Bernanke warned on Tuesday that the financial markets were a long way from being normal.

'The fact that the U.S. dollar can make ground on days that the oil price rises are a good indication that sentiment towards the U.S. dollar has turned positive,' he said.

A better picture of inflation in the United States will be provided by Wednesday's release of April consumer price index (CPI (NYSE: CPY - news) ) data. The market is expecting the data to show core CPI inflation for the month , excluding food and energy prices, rising at an annual pace of 2.4 percent, the same as in March. But a higher number is likely to add a further boost to the dollar, analysts said.

Ian Copsey, a senior financial analyst at Global Forex Trading, said inflation will be a theme in Japan today due to the release of domestic corporate services prices data, which may lead to speculation about the possibility of the Bank of Japan hiking rates.

But Copsey said weak domestic demand and low consumer confidence means rate hikes are unlikely, particularly as inflation in Japan is a result of external factors.

Meanwhile, the Australian dollar is continuing to trade at near 24-year highs above 94 U.S. cents, with last night's fiscal budget for the year to June 2009 being seen as not doing enough to ease inflationary pressures, leaving the debate open about whether the Reserve Bank of Australia had finished with its rate hiking cycle.

Noonan said evidence of domestic demand cooling has reduced the chances of further rate hikes.

'Anecdotal evidence suggests that some sectors of the Australian economy are cooling off substantially. Selling the Australian dollar on rallies towards 95 U.S. cents is the preferred strategy,' he said.

Sydney 10:10 a.m. (0010 GMT)

U.S. dollar

yen 104.71

Swiss franc 1.0520

Euro

U.S. dollar 1.5478

yen 162.070

Swiss franc 1.6283

pound 0.7955

Pound

U.S. dollar 1.9458

yen 203.750