Dollar Hits Two-Month High Against Yen


The dollar hit a two-month high against the yen and held on to last week’s sharp gains against the euro on Monday amid speculation that the Federal Reserve was approaching the end of its interest rate cutting cycle.

Analysts were expecting the central bank to cut its Fed funds rate by 25 basis points to 2 per cent after its policy meeting on Wednesday, but move to a neutral policy stance having cut rates by 325 basis points since the start of the credit crisis last summer.

Meanwhile, some analysts argued that signs of weakness in the eurozone economy could undermine the euro and force the European Central Bank to shy away from its hawkish stance on interest rates.

Figures last week showed a larger-than-expected drop in German business confidence, while eurozone money supply figures came in below forecasts.

The euro dropped sharply against the dollar last week, having hit a record high of $1.6018, after investors reassessed the prospect of further monetary tightening in the eurozone.

Indeed, the dovish sentiment was given further support on Monday after four German states reported monthly falls in the rate of inflation, boosting expectations that inflationary pressures in the eurozone’s largest economy were starting to slide.

The dollar lost ground against the Australian and New Zealand dollars, however, as stability on global equity markets boosted risk appetite and gave the high-yielding currencies a boost.


TradingEconomics.com, Financial Times
4/28/2008 8:52:30 AM