7 December 2005, 13:27  Dollar Higher Against Yen and Euro on Interest Rate Outlook

Тhe dollar rebounded from early losses against the yen and euro in Asian trading Wednesday, with dealers optimistic about the dollar's outlook in the face of relatively high U.S. interest rates. The dollar bought 121.05 yen on the foreign exchange market at 4 p.m. (0700 GMT) Wednesday, up 0.28 yen from late Tuesday, but still below a 32-month high of 121.40 yen it hit Monday. The euro fell to US$1.1762 from US$1.1791, after rising as high as US$1.1803. The dollar initially slid against the yen as American and Swiss investment banks sold the currency to lock in recent gains, but Japanese importers later bolstered the dollar with a round of buying later in the session, traders said. While flows were subdued because of a lack of major economic data, overall sentiment remained in the dollar's favor because of its positive interest rate advantage, currency dealers said. The U.S. Federal Reserve is scheduled to meet on Dec. 13 and is expected to raise interest rates another quarter point to 4.25 percent. Higher U.S. interest rates spur demand for dollars because investments there tend to generate higher returns. Traders say they are also pessimistic about the yen given Japanese investors' hefty purchases of overseas assets. "A lot of Japanese are getting their year-end bonuses, and some of that money will go to foreign bonds," said Yukihiro Shimoyamada, vice president of foreign exchange at UFJ Bank. "The U.S. interest rate gap will keep expanding until at least early next year, so it's difficult to think the dollar's gains would stop here."

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