13 August 2003, 09:17  Dollar extends gains, trend brightens after FOMC

TOKYO, Aug 13 - The dollar pushed higher in Asia on Wednesday, extending gains made after the Federal Reserve raised hopes of a U.S. economic recovery by signalling it would keep interest rates low for some time to come. While the Fed carefully couched its assessment of economic prospects, its statement of determination to keep rates low for "a considerable period" fuelled hopes of stronger U.S. growth -- and a strong currency -- in the future, dealers said. "Optimism towards the outlook of the U.S. economy spread after the Federal Open Market Committee (FOMC) meeting, which encouraged broad-base dollar-buying," said Hiroyuki Watanabe, forex section manager at Shinsei Bank.
The Fed itself said the outlook for growth remained neutral as it left benchmark lending rates at one percent and warned of the risk of inflation becoming undesirably low. The dollar rose above 119 yen, but trade in Tokyo was very thin as summer holidays got underway, something traders said could be exaggerating the dollar's upswing. The greenback also received indirect support as the euro advanced against the yen on bargain-hunting, but it was capped by lingering speculation that Japanese investors were seeking to repatriate funds by collecting coupon payments and redemptions proceeds from U.S. Treasuries this week.
By 0306 GMT, the euro had advanced to 134.08/18 yen after slipping to a morning low of around 133.60. It was quoted at 133.93/4.04 in late U.S. trade on Tuesday. The dollar was quoted at 119.13/15 yen compared with Tuesday's late U.S. level of 118.65/75. The dollar was supported against the euro as traders sold the currency in an attempt to trigger stop-loss orders rumoured around $1.1250. The euro was at $1.1262/67 against Tuesday's $1.1274/80. Some traders said Tuesday's rise in U.S. stocks had a bigger impact than the Fed in helping the dollar. The Dow Jones industrial average <.DJI> gained one percent on Tuesday. "I don't think the outcome of the FOMC meeting had much impact on the forex market, while the strength in U.S. stocks played a key role in helping the dollar," said Hideaki Furumaya, head of the corporate desk at Trust and Custody Services Bank.
The dollar continued to be supported by wariness about Japanese intervention, which would grow if the dollar drops below 118 yen, they said. The market is also waiting for a series of U.S. economic data over the next few days, including July U.S. retail sales on Wednesday, weekly jobless claims on Thursday and the July Consumer Price Index on Friday. Economists polled by said U.S. consumers spent heavily in July, encouraged by the government's stimulative tax cuts and low interest rates. They estimated that retail sales rose 0.9 percent in July after a 0.5-percent rise in June. The Commerce Department releases its July report on retail sales at 0830 EDT (1230 GMT).//

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