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Dollar Rises as Greenspan Says Fed Will `Do What Is Required'
June 8 (Bloomberg) -- The dollar rose the most against the euro in three weeks and advanced against the yen after Federal Reserve Chairman Alan Greenspan signaled the central bank is prepared to accelerate the pace of interest-rate increases to stem inflation.
The dollar erased an earlier decline against the euro after the Fed chairman said a commitment to raising its key rate at a ``measured'' pace can be revoked if needed. European Central Bank President Jean-Claude Trichet said that inflation in the 12- nation euro zone will below the bank's 2 percent target in 2005.
``Rates in the U.S. are going to go up, while in Europe they will remain steady or, possibly, even go lower,'' said Brian Taylor, chief currency trader at Buffalo, New York-based Manufacturers & Traders Trust, which has $50 billion in assets.
The dollar strengthened to $1.2257 per euro at 10:13 a.m. in New York from $1.2321 late yesterday, according to EBS, an electronic foreign-exchange dealing system. It rose to 109.85 yen from 109.55 after dropping yesterday by the most since September. The dollar was stronger against 13 of 16 major currencies tracked by Bloomberg.
``We've heard other Fed guys talk about rate hikes but the fact this comes from Greenspan gives it the stamp of approval,'' said Lee Ferridge, head of global currency strategy in London at Rabobank Groep, the third-biggest Dutch bank. ``The dollar may gain to $1.2180 in the next two days.''
Market Reaction
Stocks and bonds fell on Greenspan's comments. The Standard & Poor's 500 Index dropped 0.37 percent, trimming its year-to- date advance to 2.19 percent. The benchmark 4 3/4 percent note due May 2014 lost 3/8, or $3.75 per $1,000 face amount, to 99 17/32. Its yield rose 5 basis points, or 0.05 percentage point, to 4.81 percent.
Speaking to an international monetary conference in London via satellite from Washington, Greenspan also said ``ample'' liquidity from the Fed is ``increasingly unnecessary.'' Fed policy makers said last month that the target rate for overnight loans between banks will rise ``at a pace that is likely to be measured.''
Government reports slated for release this week in the U.S. may suggest that inflation is accelerating. The Labor Department on Thursday may say that import prices rose 0.8 percent in May from 0.2 percent in April, according to the median estimate of economists in a Bloomberg News survey.
Kohn, Bernanke
At 3 p.m. in Washington on Thursday, a separate report may show that producer prices rose for a sixth month in May, according to another Bloomberg survey.
Fed Governor Donald Kohn said Friday the recent series of price increases ``probably does not represent the leading edge of steadily worsening inflation.'' Fed Governor Ben S. Bernanke said on May 20 that ``core inflation appears likely to remain in the zone of price stability during the remainder of 2004 and into 2005.''
July federal funds futures indicated traders see a 100 percent chance of a quarter-point rate increase at the Fed's June 29-30 meeting. The contract yielded 1.27 percent. The December contract yielded 2.18 percent.
The Fed chairman also suggested the central bank is not concerned that rising interest rates will cause a disruption in financial markets, as happened in 1994. The dollar lost 9.24 percent against the euro that year amid a series of interest-rate increases from the Fed.
1994 Repeat?
``It's reassuring to some people that Greenspan doesn't want to see what happened in 1994 repeat itself, and that is helping the dollar,'' said Jason Bonanca, a currency strategist in New York at Credit Suisse First Boston.
Bonanca said the dollar may strengthen to $1.20 per euro in three months. In 12 months, he said it may weaken to $1.26.
Earlier, the dollar fell after a car bomb exploded in Mosul, killing at least nine people and injuring 25 others, the U.S. military said in a statement.
The United Nations Security Council today is slated to vote on a resolution endorsing both Iraq's sovereignty and an international military force to maintain security when a new government takes power from a U.S.-led coalition on June 30.
``The problem in Iraq is not going to go away soon,'' said David Mozina, currency strategist in Sydney at ABN Amro Holding NV. ``The dollar is going to suffer when this kind of thing happens. It's one of those exogenous factors that investors have to be aware of.''
To contact the reporter on this story:
Heather Bandur in New York at hbandur@bloomberg.net
Vivianne Rodrigues in New York at vrodrigues@bloomberg.net
To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net
Last Updated: June 8, 2004 10:19 EDT
Dollar Rises as Greenspan Says Fed Will `Do What Is Required'
June 8 (Bloomberg) -- The dollar rose the most against the euro in three weeks and advanced against the yen after Federal Reserve Chairman Alan Greenspan signaled the central bank is prepared to accelerate the pace of interest-rate increases to stem inflation.
The dollar erased an earlier decline against the euro after the Fed chairman said a commitment to raising its key rate at a ``measured'' pace can be revoked if needed. European Central Bank President Jean-Claude Trichet said that inflation in the 12- nation euro zone will below the bank's 2 percent target in 2005.
``Rates in the U.S. are going to go up, while in Europe they will remain steady or, possibly, even go lower,'' said Brian Taylor, chief currency trader at Buffalo, New York-based Manufacturers & Traders Trust, which has $50 billion in assets.
The dollar strengthened to $1.2257 per euro at 10:13 a.m. in New York from $1.2321 late yesterday, according to EBS, an electronic foreign-exchange dealing system. It rose to 109.85 yen from 109.55 after dropping yesterday by the most since September. The dollar was stronger against 13 of 16 major currencies tracked by Bloomberg.
``We've heard other Fed guys talk about rate hikes but the fact this comes from Greenspan gives it the stamp of approval,'' said Lee Ferridge, head of global currency strategy in London at Rabobank Groep, the third-biggest Dutch bank. ``The dollar may gain to $1.2180 in the next two days.''
Market Reaction
Stocks and bonds fell on Greenspan's comments. The Standard & Poor's 500 Index dropped 0.37 percent, trimming its year-to- date advance to 2.19 percent. The benchmark 4 3/4 percent note due May 2014 lost 3/8, or $3.75 per $1,000 face amount, to 99 17/32. Its yield rose 5 basis points, or 0.05 percentage point, to 4.81 percent.
Speaking to an international monetary conference in London via satellite from Washington, Greenspan also said ``ample'' liquidity from the Fed is ``increasingly unnecessary.'' Fed policy makers said last month that the target rate for overnight loans between banks will rise ``at a pace that is likely to be measured.''
Government reports slated for release this week in the U.S. may suggest that inflation is accelerating. The Labor Department on Thursday may say that import prices rose 0.8 percent in May from 0.2 percent in April, according to the median estimate of economists in a Bloomberg News survey.
Kohn, Bernanke
At 3 p.m. in Washington on Thursday, a separate report may show that producer prices rose for a sixth month in May, according to another Bloomberg survey.
Fed Governor Donald Kohn said Friday the recent series of price increases ``probably does not represent the leading edge of steadily worsening inflation.'' Fed Governor Ben S. Bernanke said on May 20 that ``core inflation appears likely to remain in the zone of price stability during the remainder of 2004 and into 2005.''
July federal funds futures indicated traders see a 100 percent chance of a quarter-point rate increase at the Fed's June 29-30 meeting. The contract yielded 1.27 percent. The December contract yielded 2.18 percent.
The Fed chairman also suggested the central bank is not concerned that rising interest rates will cause a disruption in financial markets, as happened in 1994. The dollar lost 9.24 percent against the euro that year amid a series of interest-rate increases from the Fed.
1994 Repeat?
``It's reassuring to some people that Greenspan doesn't want to see what happened in 1994 repeat itself, and that is helping the dollar,'' said Jason Bonanca, a currency strategist in New York at Credit Suisse First Boston.
Bonanca said the dollar may strengthen to $1.20 per euro in three months. In 12 months, he said it may weaken to $1.26.
Earlier, the dollar fell after a car bomb exploded in Mosul, killing at least nine people and injuring 25 others, the U.S. military said in a statement.
The United Nations Security Council today is slated to vote on a resolution endorsing both Iraq's sovereignty and an international military force to maintain security when a new government takes power from a U.S.-led coalition on June 30.
``The problem in Iraq is not going to go away soon,'' said David Mozina, currency strategist in Sydney at ABN Amro Holding NV. ``The dollar is going to suffer when this kind of thing happens. It's one of those exogenous factors that investors have to be aware of.''
To contact the reporter on this story:
Heather Bandur in New York at hbandur@bloomberg.net
Vivianne Rodrigues in New York at vrodrigues@bloomberg.net
To contact the editor responsible for this story:
Daniel Moss at dmoss@bloomberg.net
Last Updated: June 8, 2004 10:19 EDT
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