Mon, Mar 3 2008, 05:52 GMT
http://www.afxnews.com
HONG KONG (Thomson Financial) - The dollar traded close to a record low against the euro and hovered near its weakest level against the yen in three years in Asian afternoon trading on Monday, as investors bet the Federal Reserve may slash its rates by as much as 75 basis points in the middle of this month.
Fed Chairman Ben Bernanke last week rattled financial markets when he painted a gloomier outlook for the world's biggest economy, while hinting at further rate cuts. Bernanke also said the weak dollar is helping the US economy boost exports, suggesting that policy makers won't take measures to prop up the greenback.
"Bernanke's comments added to the generally bearish outlook on the economy. There is no reason to buy the dollar," said Tomoko Fujii, head of economic strategy at Bank of America.
Some traders are now speculating that the Fed may lower rates by up to 75 basis points on March 18 to lift the economy that is battling a slump in the housing and financial sectors, declining consumer spending, rising unemployment and weakening manufacturing output.
"I won't be surprised if some people are already pricing in a 75-basis-point rate cut," said Mark Wan, chief analyst at Hang Seng Investment Services Ltd. "But that's probably too much."
The Fed in January lowered rates twice and by a cumulative 1.25 percentage points as global stock markets plunged. The rate cuts were made in a week's time, with the first 75-basis-point reduction done a week before the Fed's regular Jan 29-30 meeting.
At 1.00 pm (0500 GMT), the euro was trading at 1.5211 dollars, little changed from 1.5210 in Tokyo this morning. The euro rose to 1.5231 dollars last week, its highest level since the European single currency began trading in January 1999.
The dollar was quoted at 103.18 yen, after falling to 102.98 in Tokyo earlier today, its weakest level since January 18, 2005, when it hit 102.35.
The yen is also supported by growing risk aversion, keeping speculators from borrowing in the Japanese currency to buy higher-yielding securities elsewhere. These transactions, known as carry trades, weaken the yen.
The dollar's next major support versus the euro will be at 1.55 level, which could be tested within the month, while the dollar may fall below the 101 yen level, said Bank of America's Fujii.
Fears about a US recession were exacerbated by American Insurance Group's announcement that it posted its biggest quarterly loss of 5.3 billion dollars in the fourth quarter due largely to an 11-billion-dollar write-down. Investors on Friday dumped shares of the world's largest insurer.
"The anxiety about the credit crisis is becoming even stronger than before," said Ryohei Muramatsu, head of Group Treasury Asia of Commerzbank in Tokyo.
"Furthermore, the market now feels that a weak dollar no longer bothers the Fed," Muramatsu said.
The Fed has lowered its rates by a cumulative 225 basis points since September to ease the credit crunch, restore investor confidence and calm financial markets.
Among the US economic data that investors will be watching this week include last month's jobless and manufacturing data.
Hong Kong 1 pm (0500 GMT)
US dollar
yen 103.18
sfr 1.0343
Euro
usd 1.5211
stg 0.7661
yen 157.05
sfr 1.5727
Sterling
usd 1.9847
yen 204.98
sfr 2.0526
Australian dollar
usd 0.9340
stg 0.4704
yen 96.44
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