Sun, Jul 02, 2006 - Page 10 News List

US dollar takes a tumble on likely pause in rate hikes

EXIT THE BULLS The US central bank's hint that it will halt its rate hikes sent the greenback into a freefall against other major global currencies


The US dollar fell sharply on Friday, still reeling a day after the US Federal Reserve raised key lending rates but hinted at a pause in the central bank's series of rate hikes.

The euro jumped to US$1.2789 at 2100 GMT from US$1.2656 late on Thursday in New York.

The dollar sank to ¥114.44 from ¥115.14 on Thursday.

Markets were still digesting Thursday's action by the Federal Reserve, which increased its base rate by a quarter point to 5.25 percent, as expected, but offered a less hawkish tone about future actions.

The Fed action "sent dollar bulls stampeding for the exits," said Boris Schlossberg, an analyst at Forex Capital Markets, who added that "market sentiment made a major shift away from the greenback."

The US dollar's recent gains have been linked to hawkish comments from Federal Reserve members that led market players to believe rates would go significantly higher, making US dollar-based investments more attractive. But now traders are shifting expectations.

Bank of Tokyo-Mitsubishi economist Derek Halpenny said, "The probability of an August rate hike has fallen from over 90 percent to about 65 percent."

Economic data also put downward pressure on the US dollar Friday after the US Commerce Department reported that growth of consumer spending had slowed sharply in May to 0.4 percent from 0.7 percent in April.

The focus on the Federal Reserve in recent days has masked mounting evidence in Europe that eurozone interest rates will also rise.

Data and remarks from members of the European Central Bank have combined this week to reinforce expectations that the central bank will raise its main interest rate next month by a quarter point to 3.0 percent.

In late New York trade, the US dollar stood at 1.2226 Swiss francs from 1.2367 Thursday.

The pound was being traded at US$1.8489 after US$1.8276 late on Thursday.

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