June 23 (Bloomberg) -- The dollar rose against the euro for the fifth day in six on analysts' expectations that the Federal Reserve won't cut interest rates by more than a quarter percentage point this week. The dollar strengthened to $1.1585 per euro at 2:45 p.m. in Tokyo, from $1.1608 late Friday in New York, when it ended its biggest weekly gain since March. The U.S. currency held at 118.35 yen. The Wall Street Journal reported Friday that Fed officials have indicated a quarter percentage point cut is possible, reducing expectations among some economists for a bigger cut.
In a Bloomberg News survey of 150 analysts, 94 predicted the Fed will cut rates by a quarter percentage point this week and 45 forecast a half-point cut. Eleven predicted the Fed would keep rates unchanged. Fed officials are scheduled to announce their decision about 2:15 p.m. Washington time Wednesday. ``It looks like it's going to be a 25 basis point cut, and that's helping the dollar,'' said Masahiro Fukuhara, currency strategist in Tokyo with Barclays Global Investors, which has about $750 billion under management. Barclays Global, which had more euro holdings than recommended by the benchmark it uses to gauge performance, has recently reduced its position, he said.
A basis point is 0.01 percentage point. Sixty percent of the 33 analysts, traders and investors from Tokyo to New York surveyed by Bloomberg News on Friday advised buying or holding the dollar against the euro in part because a smaller interest rate reduction would help maintain demand for U.S. fixed-income assets such as bank deposits and bonds.
Consumer Confidence
The dollar's rise may be limited on expectations the New York- based Conference Board will report Tuesday that its consumer confidence gauge declined this month to 82 from 83.8, according to the median forecast of 52 economists surveyed by Bloomberg News. A separate indicator of consumer sentiment by the University of Michigan on Friday may show a final reading for June of 87.5, down from 92.1 in May. ``The effect U.S. consumers have on the U.S. economy is pretty large,'' said Paul McNee, chief foreign exchange trader at Australia and New Zealand Banking Group Ltd. in Melbourne, Australia's fourth-biggest lender. ``The confidence numbers could have a negative impact on the dollar.'' The possibility the Fed may still cut by 50 basis points will also limit the currency's gains, analysts said. Twelve of the 22 bond trading firms that deal directly with the central bank predict the Fed will reduce rates by half a percentage point -- the rest predict a quarter-point reduction.
Rate Cut Debate
``We take the view the Fed will cut by 50 basis points, an event which, given a split market, should lead to moderate dollar weakness,'' said Johnathan Bayley, currency strategist in Wellington with Westpac Banking Corp. The euro fell against the yen after European Central Bank council member Eugenio Domingo Solans signaled the ECB may lower interest rates again. The ECB earlier this month reduced its benchmark refinancing rate by 50 basis points to 2 percent. ``Interest rates were appropriate when I left the governing council meeting two weeks ago,'' Solans said in an interview with the Financial Times newspaper. ``But we will make our next assessment on July 10. We will see.'' The euro fell to 137.08 yen, from 137.38 yen. The dollar may rise against the yen on concern among traders Japan is trying to weaken its currency to help the country's exports. Japanese officials last week signaled they intend to sell the yen to keep it from rising. Zembei Mizoguchi, vice minister for international affairs at the Ministry of Finance, said Japan is closely watching the currency markets and that the yen wasn't ``in any condition to strengthen.''
Bank of Japan
The Bank of Japan sold a record 3.98 trillion yen ($33.6 billion) in May to keep its currency from strengthening, and has spent more that 6 trillion yen this year. ``At the very least, any move down in the dollar has stopped, and changed the trend of selling it'' against the yen, said Takashi Nakata, head of foreign exchange proprietary trading in Tokyo at BNP Paribas SA, France's largest bank. The dollar may rise to 118.80 yen today, he said. Optimism about the U.S. economy grew last week after reports showed consumer prices rose more than forecast in May while manufacturing increased in the Philadelphia and New York regions this month, reducing the likelihood of a half-percentage-point cut by the Fed this week.
Reports this week are expected to show factory orders rebounded and more homes were sold in May. Bookings for durable goods, such as automobiles and appliances, rose 1 percent in May, according to the median of 54 economists' forecasts in advance of Wednesday's Commerce Department report. New home sales, to be issued the same day, may have run at a 1.04-million-unit annual rate, the third-fastest ever, economists said. In other trading, the dollar was at 1.3304 Swiss francs, from 1.3280 francs. The British pound was at $1.6656, from $1.6642//www.bloomberg.com