Dollar stabilises as ECB rate hike prospects dwindle
November 22, 2005
Tokyo - The dollar steadied in Asian trade on Tuesday after clawing back lost ground against the euro as prospects of a series of rises in eurozone interest rates were seen as fading, dealers said.
The dollar edged up slightly to ¥119.05 in Tokyo morning trade from ¥119.01 in New York late Monday.
The euro gained to $1.1730 from $1.1726 in New York and to ¥139.64 here from ¥139.60.
Trading was somewhat subdued ahead of national holidays in Japan on Wednesday and the United States on Thursday, dealers said.
The euro retreated from a two-week high of $1.1832 recorded on Monday, hit by remarks from European Central Bank (ECB) chief Jean-Claude Trichet which dampened expectations of a series of interest rate increases in the eurozone.
"The comments from Trichet were a trigger for the market squaring dollar-long (bought) position," said Toru Sasaki, currency analyst at JP Morgan Chase Bank.
"The market trend remains for a strong dollar and the US currency is expected to rise moderately this week with little new incentives," he said.
In comments in the European Parliament in Brussels, Trichet said that the central bank was "ready" for an interest rate increase but that he did not see a "series" of hikes.
Markets were caught by surprise after Trichet said Friday in a speech that after holding its key lending rate at 2.0 percent since June 2003, "I consider that the governing council is ready to take a decision on interest rates."
The remarks gave the euro a brief fillip as dealers bet that the ECB would raise interest rates on December 1 for the first time in over five years, narrowing the yield differential with the United States.
But with the US Federal Reserve expected to continue raising its key lending rate from the current 4.00 percent, dealers said it would take more than one rate rise in the eurozone to halt the greenback's ascent.
"Without a series of ECB rate hikes, the US will maintain a juicy interest rate advantage over the eurozone, serving to support the US dollar," National Australia Bank currency strategists said in a market note issued in Sydney. - AFP
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