The dollar crept up in Asia Wednesday, January 31, ahead of a crucial Federal Reserve decision on interest rates but its gains were limited by a slump in US consumer confidence. "Investors bought the dollar to adjust their positions," said Fuji Bank dealer Yoshiyasu Naruse. "They are waiting for the FOMC outcome."
Economists are predicting a rate cut of half a percentage point when the Federal Open Market Committee (FOMC) ends a two-day meeting later Wednesday, as policymakers seek to provide fresh impetus to the sputtering US economy.
The greenback traded at 116.38 yen around 5:00 pm (0800 GMT), up from 115.92 yen in New York and 116.53-56 in Tokyo Tuesday afternoon. "Investors have already factored in a 50 basis point rate cut," Mitsubishi Trust and Banking dealer Yasuharu Tsuru said. “If the rate cut is only 25 basis points, the New York stock market will react and so will the dollar," he said.
The need for a cut was underlined by data out Tuesday which showed US consumer confidence in January tumbled to its lowest point since December 1996, according to the Conference Board business research group. "It's a recession, it's no surprise," Commerzbank foreign exchange manager Ryohei Muramatsu said. "People are too optimistic. The American economy has risen for 10 years and now it has stopped. It will take a long time to grow again," he said.
It was rumoured the FOMC might cut rates by 75 basis points following the consumer confidence slump, although most analysts were betting on 50 points, Muramatsu said.
The euro changed hands at $0.9303 around 5:00 pm, up from $0.9261 in New York and $0.9167-70 in Tokyo Tuesday afternoon. Against the yen, the euro bought 108.26, up from 107.35 in New York and 106.86 in Tokyo late Tuesday. The euro benefited from the worse-than-expected US consumer confidence readings, said Singapore-based DBS bank.
"The Fed will now have to ease rates by at least 50 basis points in order to signal its seriousness to avert a hard landing," it said in a report. —(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)
