20 August 2001, 10:24  Forex - Dollar rangebound in midafternoon Tokyo ahead of FOMC

TOKYO (AFX-ASIA) - The dollar was rangebound against the yen in midafternoon trade ahead of the US Federal Open Market Committee Meeting tomorrow, dealers said.
The US Fed is widely expected to decide on a 25 basis point cut at the meeting, but some speculation is underway that the FOMC may reduce interest rates by as much as 50 basis points, dealers said. Sumitomo Trust and Banking Co Ltd chief customer dealer Jitsuo Tachibana said the dollar may not see a sustained rebound in either case.
"In case of a 25 basis point cut, the market will probably not show any strong reaction, although it may disappoint some speculators who are expecting a 50 basis point cut," he said.
"Even a 50 basis point cut may not help the dollar, as the market may take the action as a reflection of a more severe-than-expected economic condition in the US."
The dollar was supported on its downside by to a sustained fall on the local equity market, dealers said.
"Investors will be watching closely how the US capital markets react to the FOMC's rate announcement as, depending on developments there, the dollar may see some short-lived gain," Tachibana said. He said he expects the dollar to continue to range from 118.00-122.00 yen, with the possibility of being re-exposed to downside risk once again.
"Fears over a verbal intervention should continue to support the downside of the dollar," he said.
The euro was also little changed ahead of the FOMC meeting this week and the European Central Bank meeting next week, dealers said. "Underlying positive sentiment towards the euro is expected to remain intact, given a further widening of interest rate differentials between the US and Europe," Tachibana said.
"But some may begin to try to cash in on the euro's prolonged gain, now entering its seventh week of a rise."

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