Forex - US dollar weaker in Sydney morning trade on dovish Fed outlook

Forex - US dollar weaker in Sydney morning trade on dovish Fed outlook

	Published : Thu, 22 Mar 2007 00:46 By : Agencies Print this Story

SYDNEY (XFN-ASIA) - The dollar was trading lower against the yen and euro after the Federal Reserve kept its federal funds rate target at 5.25 pct as widely expected but opened the door for a possible rate cut this year, dealers said.

The Federal Open Market Committee dropped past language on possible further interest rate hikes ahead and firmer economic growth, but remained concerned over inflationary risks.

Dealers said the greenback is expected to maintain a selling bias ahead of scheduled speeches by a number of Federal Reserve officials tonight.

At 9.59 am here (2259 GMT Wednesday), the dollar was at 117.42 yen, down from 117.59 in late New York trading, while the euro was at 1.3389 usd versus 1.3383 in New York.

The dollar fell against most rival currencies overnight after the release of the FOMC statement, but the yen traded between 117.20-117.85 before ending near the middle of the range, dealers said.

The Fed statement's wording was changed from an outlook of 'firmer economic growth' and the possible need for further 'firming' of monetary policy, to economic indicators now being 'mixed', the economy likely to expand at a 'moderate pace' and 'future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth'.

On inflation outlook, the statement removed references to 'some inflation risks remain' and

preferred to state its 'policy concern remains the risk that inflation will fail to moderate as expected.'

NAB Capital senior economist David de Garis said while the Federal Reserve remains concerned about inflation risks in the near term, the central bank does expect it to moderate and that policy adjustments will evolve according to incoming data.

This could mean that US monetary policy ahead may be eased compared to the central bank's

outlook in January when it had a clearer hawkish tone and it noted additional rate hikes may be needed to address inflation risks, he said.

'This morning's FOMC statement was dovish, making the next move in the federal funds rate as a cut all that much more likely,' de Garis said.

'We are forecasting for the Federal Reserve to ease monetary policy in the December quarter,'' he added.

Sydney 9.59 am (2259 GMT Wednesday)

US dollar

117.42 yen

1.2091 sfr

Euro

1.3389 usd

157.19 yen

1.6187 sfr

0.6805 stg

Sterling

1.9631 usd

231.04 yen

2.3795 sfr

Australian dollar

0.8088 usd

0.4109 stg

94.940 yen

New Zealand dollar

0.7107 usd

paul.daniel@xfn.com

pd/mas