SYDNEY (XFN-ASIA) - The US dollar was trading mixed against other major currencies here though it is seen coming under further pressure as the market factors in a possible near term end to the Federal Reserve's interest rate tightening cycle, dealers said.
Last night the FOMC raised its target rate by a further 25 bps as expected but its accompanying statement prompted a sharp drop in the greenback as investors took the view that the Fed was signalling it may soon pause its long series of rate increases.
At 10.12 am Sydney time, (0012 GMT) the euro was 1.2668 usd, up from 1.2660 in late New York trade while the US dollar was at 115.15 yen, up from 115.06 yen in New York.
National Australia Bank currency strategists said the euro is likely to trade in a range of 1.2600-1.2800 usd in the coming weeks with the US dollar losing yield support.
The strategists added that unlike the euro, the speculative community was short the yen and some position squaring here should see the US dollar fall to 114.50-114.60 yen in the near term.
They said the euro is expected to fall against the yen for the same reason.
Dealers said the US dollar plunged against major currencies overnight as a result of the pause indications within the Federal Reserve statement.
The euro jumped to a high of 1.2645 usd overnight from 1.2545 while the US dollar dropped to a low of 115.10 yen from 116.52.
Dealers said the greenback's strength has been undermined by the Federal Reserve's outlook statement.
They said the US central bank now views future interest rate hikes as having greater dependence on economic growth and inflation data than what was indicated in previous statements.
The statement's key phrase was: 'the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth.'
This compares with the general hawkish tone of the May statement: 'that some further policy firming may yet be needed to address inflation risks.'
Commonwealth Bank's senior currency strategist said in a market note the Federal Reserve also indicated that inflation expectations appear contained and that moderation in growth should help limit inflation pressures.
Sydney 10.12 am (0012 GMT)
US dollar
yen 115.18
sfr 1.2365
Euro
usd 1.2668
stg 0.6928
yen 145.79
sfr 1.5660
Sterling
usd 1.8279
yen 210.39
sfr 2.2605
Australian dollar
usd 0.7390
stg 0.4045
yen 85.100
New Zealand dollar
usd 0.6058
paul.daniel@xfn.com
pd/mb
© 2006 AFX News
