Forex - Dollar Firm After Lacker Comments

ONDON (Thomson Financial) – The dollar remained relatively firm against its major rivals as the market scaled back its expectations for an imminent interest rate cut from the US Federal Reserve.

Those expectations were diminished overnight when Jeffrey Lacker, a non-voting Fed official, said upside risks to inflation remain and that he is comfortable with interest rates at 5.25 pct at the moment.

‘US bond yields have moved higher inspired by hawkish comments by Lacker,’ said Ian Stannard, currency strategist at BNP Paribas.

With no major US economic data until tomorrow’s durable goods news, analysts said the dollar is likely to retain a solid tone through the day.

‘Although we don’t see a sustainable dollar rally for now, the dollar may be able to defend its position today,’ said Gavin Friend, currency strategist at Commerzbank Corporates & Markets.

Elsewhere, attention will focus on the US/China talks in Washington and what tone US Treasury Secretary Hank Paulson takes with regard to last week’s recent move to widen the yuan’s fluctuation band against the dollar.

Any comments from the Chinese on the pace of yuan reform will be crucial and whether they manage to stave off rising protectionist sentiment in the US.

Before then, the pound is likely to be in focus with the publication of the minutes to the last rate-setting meeting at the Bank of England.

The vote is expected to have been 8-1 in favour of the quarter point rise in the base rate to 5.50 pct, with David Blanchflower voting to keep rates unchanged.

However, sterling markets will be interested to see if there was much or any discussion on the possibility of raising rates 50 basis points to 5.75 pct, and whether any of the nine members voted for this.

The quarterly Inflation Report, released since the rate rise, indicated that interest rates are likely to have to reach 5.75 pct if inflation is to be brought down to the bank’s 2.0 pct target.

London 0822 BST Sydney 1:56 pm (0356 GMT)

US dollar

yen 121.71 up from 121.69

sfr 1.2280 down from 1.2294

Euro

usd 1.3445 down from 1.3454

yen 163.65 down from 163.73

sfr 1.6511 down from 1.6541

stg 0.6808 down from 0.6813

Sterling

usd 1.9753 up from 1.9745

yen 240.34 up from 240.30

sfr 2.4245 down from 2.4276

Australian dollar

usd 0.8213 up from 0.8207

stg 0.4157 up from 0.4152

yen 99.95 up from 99.850

pan.pylas@thomson.com

pp/lam

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Forex – Dollar firm after Lacker comments