Forex - Dollar steady in Asian afternoon trade as market weighs higher inflation

Thu, Feb 21 2008, 05:44 GMT
http://www.afxnews.com

HONG KONG (Thomson Financial) - The US dollar hardly moved in afternoon trade in Asia on Thursday as investors weighed higher inflation and record high oil prices on the direction of interest rates.

Some analysts expect the Federal Reserve to be less aggressive in cutting rates in the future after Wednesday's figure showed US consumer prices rose more than expected last month, while crude oil prices climbed to record highs.

Others maintained the Fed will further cut rates as indicated by yesterday's minutes from the January meeting.

"The market's focus is on US interest rate movements," said Daniel Chan, senior investment strategist at DBS Bank. "There is a high probability that the Federal Open Market Committee will lower interest rates in March. But there is no consensus yet on how much."

At 1.00 pm (0500 GMT), the dollar was trading at 108.09 yen from 108.03 in Sydney this morning. The euro was at 1.4716 dollars from 1.4720.

Consumer prices in the US rose 4.3 percent in January from a year earlier, faster than December's 4.1 percent gain. Oil prices, meanwhile, rose to more than 101 dollars a barrel, the highest level ever, adding to worries inflation will continue to bedevil the world's largest economy.

Based on its January 29-30 meeting, the Fed appeared to be ready to cut rates to support the faltering economy, after it lowered its 2008 growth forecast by half a percentage point to between 1.3 to 2 percent from a 2.1 to 2.4 percent estimate made in October.

The Fed has lowered its key rates by a cumulative 225 basis points since it began easing rates in September to keep the economy from tipping into a recession and calm investors.

"Fears that the Fed would be restrained from cutting rates due to the spike in CPI inflation in January were allayed by the minutes saying 'a larger number of participants than in October viewed the risks to inflation forecasts as broadly balanced'," said John Kyriakopoulos, head of currency strategy at NAB Capital.

Elsewhere, the Australian dollar was slightly weaker at 91.79 US cents from 91.97 cents. The Aussie will retain support as investors bet the Reserve Bank of Australia will raise interest rates again next month and the Fed will slash rates by another 50 basis points.

Hong Kong 1.00 pm (0500 GMT)

US dollar

108.09 yen

1.1002 sfr

Euro

1.4716 usd

159.10 yen

1.6186 sfr

0.7573 stg

Sterling

1.9418 usd

210.00 yen

2.1366 sfr

Australian dollar

0.9179 usd

0.4726 stg

99.30 yen

New Zealand dollar

0.7979 usd