Sun, Mar 05, 2006 - Page 10 News List

Greenback ends mixed as traders eye interest rates


The dollar traded mixed Friday as traders digested strong data from the US and tried to gauge the next moves on interest rates in the US, Europe and Japan.

The euro rose to US$1.2043 at 10pm GMT after US$1.2037 late Thursday in New York. The US dollar meanwhile rose to ¥116.36 against ¥115.86.

The US currency was bolstered by a report from the Institute for Supply Management that the vast services sector of the US economy expanded at a faster pace during February.

The ISM non-manufacturing index rose to 60.1 percent from 56.8 percent in January.

The increase was above expectations as economists were looking for the index to rise to 58 percent. Figures over 50 indicate expansion.

"It certainly looks like growth is still fairly strong in the first quarter, after a fairly weak fourth quarter," said James O'Sullivan, an economist at UBS.

"Details of the report were strong, with employment and orders indexes up," he said.

Lehman Brothers economist Ethan Harris said that based on recent data, he expects next Friday's report on US payrolls to show growth of 250,000 or greater. This robust economic picture will force the Fed to lift rates higher than the market is anticipating from the current base level of 4.5 percent, he said.

"Thus we are bumping up our growth and Fed call. We now expect the funds rate to peak at 5.5 percent at either the August or September FOMC meeting," Harris said in a note to clients.

"The economy is showing more underlying strength than we had expected," he said.

The euro however remained well-bid on expectations of further interest rate hikes in the eurozone.

The ECB on Thursday raised interest rates by a quarter point to 2.50 percent as expected. And ECB head Jean-Claude Trichet's continued emphasis on the upside risks to prices and the bank's raised forecasts for growth and inflation signaled that a further rate hike was likely in May or June.

The yen meanwhile has largely priced in the effect of the shift in policy by the Bank of Japan (BOJ), said Avery Shenfeld, senior economist at CIBC World Markets.

In late New York trade, the dollar stood at 1.2964 Swiss francs from SF1.2980 on Thursday.

The pound was being traded at US$1.7553 after US$1.7536 on Thursday.

The US dollar rose against the New Taiwan dollar in Taipei on Friday, gaining NT$0.091 to close at NT$32.401.

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