19 March 2002, 12:28 Forex - Dollar firmer in early London trade ahead of FOMC meeting _
LONDON (AFX) - The dollar stole a march on major currencies in
early trade with the market viewing the US Fed's likely move to a
neutral bias as a further sign of recovery, dealers said.
No change to US interest rates is likely when the US Federal Open
Market Committee makes a decision later today but the easing bias is
widely expected to come to an end.
"The main mover this morning is dollar-yen, with hedge funds
starting to buy dollars again," Julian Jessop, economist at Standard
Chartered said.
Demand for the dollar pushed the yen lower against all the majors.
The general view is that a move to a neutral bias will be an
official signal that the US economy has turned the corner, thus proving
favourable for the dollar, he added.
"As long as the FOMC acts in accordance with market expectations
and returns to a neutral bias, there should be little immediate
reaction," Michael Klawitter, strategist at West LB said.
The return to a neutral stance will not be negative for the dollar
as it will not weigh on US equities, he added.
"Equity valuation models largely use the long-term yield as a
discount factor, rather than short-term rates. Long-term yields have
however already risen sharply in recent months and should be little
affected by today's FOMC announcement," he said.
The dollar was also marginally higher against the euro for the same
reasons.
But the euro was also affected by threats of strikes made by IG
Metall - Germany's largest trade union. Further, the French Prime
Minister Lionel Jospin's election promise to cut taxes by 18 bln eur
also weighed on the single currency.
Against this backdrop, the probable increase in the German ZEW
economic confidence index for March is likely to be foreshadowed,
Klawitter said.
Sterling tracked the euro to move lower against the dollar.
Later this morning, UK Feb inflation data is seen showing that
price pressures have started to wane after January's surprise increase.
But a dip below the 2.5 pct official target will not ease rate hike
expectations although sterling will be vulnerable to any upside
surprise, dealers said.
The Swedish krona moved back to its level at the start of the day
after a brief surge in the wake of a 25 basis point rate hike by the
Riksbank.
The rate increase was widely expected.
"It is very choppy for the krona but recently markets have rewarded
pro- growth monetary policy," Jessop at Standard Chartered said.
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