Is the recent Fed action bad for the Dollar?
*Bloomberg, by Steve Johnson, August 9, 2006
Dollar drifts lower amid US rate uncertainty
“The US dollar drifted lower on Wednesday as market attention turned to the fate of the greenback if the Federal Reserve has, as many now expect, reached he end of its tightening path.
The Fed brought its run of 17 straight rate rises to an end on Tuesday when it opted to leave rates on hold at 5.25 per cent. The accompanying statement was seen as broadly dovish, although there was enough wriggle room for a further increase if deemed necessary.
However, with the pause widely expected, the dollar’s decline was muted. The greenback slipped just 0.4 per cent from its level immediately prior to the rate decision to $1.2886 to the euro, 0.3 per cent to SFr1.2227, against the Swiss franc and 0.1 per cent to $1.9087 against sterling, although it held steady at Y115.13 to the yen.
“The end of the Fed’s tightening cycle has been greeted with a whimper,” said Steve Pearson, chief currency strategist at HBOS.
Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ, attributed the dollar’s resilience to the fact that most speculative traders were already short-dollars in expectation of a pause. “
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