Dollar steady as markets await Fed
Dollar steady as markets await Fed
AFP
Tokyo: The dollar was stable in Asian trade on Tuesday, 18 September, as markets waited anxiously for a widely expected US interest rate cut to cushion the world’s largest economy from its housing slump, dealers said.
They said the pound remained pressured by concerns about the financial health of British banks given the troubles of lender Northern Rock which has fallen victim to the global credit squeeze.
The dollar was slightly lower at 114.96 yen in Tokyo morning trade after 115.10 in New York on Monday.
The euro edged down to $1.3869 from $1.3868. Last week the European single currency hit a record high of $1.3927 on worries about the future of the US economy and expectations of a US rate cut.
The euro eased to 159.35 yen from 159.65.
“A wait-and-see mood has spread in the market" ahead of the Federal Reserve decision on US interest rates, said Yosuke Hosokawa, head of forex at Chuo Mitsui Trust Bank.
“It is almost certain that the Fed will cut rates but the question is by how much," Hosokawa said, adding that quiet trading is expected for the rest of the day ahead of the Fed decision.
The Fed is widely expected to act in the face of the worst housing slump in decades that has led to rising mortgage defaults and a tightening of credit standards that threatens the overall economy, dealers said.
Most investors expect the Fed to trim a quarter point from the federal funds rate, which has been at 5.25% since June 2006, some are calling for a bolder half-point reduction, citing rising recession risks.
The pound continued to suffer from a crisis at Northern Rock — the British mortgage lender that was bailed out by the Bank of England last week.
“The short money market has been stabilised, but new concerns are coming out one after another, such as the British troubles," Hosokawa said.
Sterling fell to $1.9903 from $1.9945 in late New York trade.
The British government vowed Monday to protect all savings as customers queued for a third straight day to withdraw cash from the bank, which has been hurt by the global credit crunch sparked by problems in the US mortgage sector.
The problems at Northern Rock have dimmed expectations the Bank of England will raise interest rates by a quarter point to 6%. Some analysts now expect a cut in British interest rates in the coming months.
The Bank of Japan was also due to begin a two-day meeting on interest rates later Tuesday but expectations of an interest rate rise have faded in light of recent market instability and political uncertainties.
The BoJ may not hike interest rates through the rest of the year because of the credit market problems and uncertainties over the domestic economy and political situation, the Nikkei business daily reported on Tuesday.
Japan is in the midst of a leadership battle following Prime Minister Shinzo Abe’s sudden resignation last week.
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