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Currency markets remain volatile as traders debate cut

The dollar climbed on Friday as a volatile market continued to be dominated by debate over the likely extent of an interest rate cut at next week's US Federal Reserve meeting.

The single European currency was trading at US$1.1615 from US$1.1721 late on Thursday in New York.

The US dollar was at ¥118.39 against ¥118.23 on Thursday.

Traders were desperately trying to divine whether next Wednesday's Federal Reserve Open Market Committee (FOMC) gathering would opt for a 25-or 50-basis-point rate cut, analysts said.

A bigger reduction would provide more impetus to the flagging American economy, but would hit the dollar, which sunk to an all-time low against the euro late last month.

A flow of generally positive US economic data this week had made the lower cut seem more likely.

However the balance swung back again on Thursday after a closely watched regional survey by the Philadelphia Federal Reserve Bank, while showing an improvement in manufacturing activity, gave a smaller rise than hoped for by the markets.

"There is a big debate currently taking place in the market whether the Fed will cut by 25 or 50 basis points," said BNP Paribas economist Iain Stannard.

"And swings in the expectations have caused some volatil-ity in bond markets, feeding through into the forex," Stannard said.

"We believe that a 50 basis point cut is more likely although recently the data flow has shown some improvement," he said.

"But yesterday the market was slightly disappointed by the Philly Fed index."

Audrey Childe-Freeman, an analyst with the Canadian Imperial Bank of Commerce, concurred with his view, but stressed that the situation was changing rapidly.

"Overall at this stage the dominant view -- just -- is that the Fed will favor a more aggressive move, but it could be a different story by the end of the day," she said.

The euro was changing hands at US$1.1615 from US$1.1721 late on Thursday in New York, ¥137.43 (¥138.60), £0.6977 (£0.6976) and 1.5436 Swiss francs (SF1.5393).

The dollar was being quoted at ¥118.39 (¥118.27) and 1.3287 Swiss francs (SF1.3135).

The pound was at US$1.6646 (US$1.6789), ¥197.01 (¥198.56) and 2.2116 Swiss francs (SF2.2052).

On the London Bullion Market, the price of an ounce of gold stood at US$358.00 from US$357.65 on Thursday afternoon.
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