26 June 2001, 15:30  Forex: Dollar firms in midday London trade ahead of U.S. indicators

LONDON (AFX) - The dollar firmed in thin midday London trade, with investors expecting today's U.S. May durable goods order and June consumer confidence figures to provide clues on the Federal Reserve rate cut expected tomorrow, dealers said.
Sonia Hellemann, strategist at Dresdner Kleinwort Wasserstein, said the dollar's recent volatility mirrored uncertainties over the outcome of tomorrow's Federal Reserve Open Market Committee rate announcement. She said: "People are trying to guess how much of a rate cut we are going to get at this meeting, 25 basis points or 50 basis points."
"If it's 25 basis points, which most people are expecting, does it signal to the market that the Fed is nearing the end of its easing cycle?" she said.
Hellemann believes a 25 basis point cut would be seen as a sign of improvement in the economy itself and therefore be dollar positive. She expects a 50 basis point cut to be seen as less optimistic and be negative for the currency.
"There are some doubts that the U.S. Fed ability to save the economy from a prolonged slowdown," she noted.
Meanwhile, the euro lost some ground against the dollar at midday. Sentiment is not as euro negative as it used to be, dealers said. "The euro can rally further if there are any negative signs coming from the FOMC," Hellemann said, adding "there is some improvement in the sentiment towards the euro... which means at least it is not going to go down that much again."
However, dealers said the important 0.8665 usd level must be breached before it is clear whether there is a switch in sentiment, dealers said.
Euro/sterling edged lower, tracking the move of the euro/dollar. Sterling/dollar was slightly lower following an earlier rally to 1.4247 usd but was up against other major currencies in quiet trading conditions.

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