Dollar Edges up vs Euro


The dollar rose slightly against the Swiss franc and the euro on Tuesday after a report showed unexpectedly high orders for durable goods in December, but moves were muted a day before a Federal Reserve monetary policy decision.

Many investors stayed on the sidelines, expecting a significant interest rate cut by the Federal Reserve after a two-day meeting that ends on Wednesday.

The euro slipped to $1.4741, down 0.3 percent from late Monday. Prior to Tuesday the dollar has fallen against the euro for four out of the last five trading days after the Fed startled markets by slashing its benchmark rate by 75 basis points to 3.5 percent in an emergency move last week.

After the durables data, the dollar rose to an intraday high of 107.23 yen before easing back to 106.90 yen, relatively unchanged on the day.

Against the Swiss franc, the dollar climbed to a session high of 1.0961 francs, and then inched back to 1.0948 francs, up 0.5 percent.

Interest rate futures reflect a roughly three-in-four chance the Fed will cut by 50 basis points after its scheduled meeting, which would bring the federal funds rate down to 3 percent, a full percentage point below the euro zone benchmark rate and among the lowest in the developed world.

A lower yield would presumably make the dollar a less attractive currency in which to hold investments.

If the Fed cuts by 50 basis points, the cumulative 125 basis points of easing would be the biggest move in a two-week period since the U.S. central bank began using the fed funds rate as its primary policy tool in the early 1990s.

Dealers and investors would like to see what the Fed, in the statement accompanying its policy decision, has to say about the risks ahead for economic growth -- especially with fourth quarter U.S. gross domestic product data and the January employment report due later this week.

 


TradingEconomics.com, Reuters
1/29/2008 8:03:05 AM