Fed to Keep Rates Low
The US dollar fell vs. the yen as disappointing retail sales figures for December reinforced the view among investors and traders that the Federal Reserve will keep rates low well into 2010. The dollar held onto gains vs. the euro after the European Central Bank left rates at record lows. Analysts said that the combination of last week’s non farm payrolls report combined with disappointing retail sales data are cause for caution about the pace of global recovery. Joe Manimbo of Travelex Global Business Payments stated, “The U.S. continues to recover at a really slow pace. If you add that to last week’s jobs data, that certainly dampens expectations of an early Fed rate hike. Consequently, that sets the stage for a weaker dollar.”
Greek Fiscal Problems Trouble Euro Zone
The dollar was also pressured by remarks from New York Federal Reserve Bank President William Dudley and Chicago Fed President Charles Evans who said the Fed would need to be certain that economic recovery is firmly underway before the Fed would begin to tighten monetary policies. At the same time the ECB kept its rates at 1% for the eighth straight month. The euro was also pressured by remarks by European Central Bank President Jean Claude Trichet who said that the economic outlook for the euro zone is ‘uncertain.’ Statements by German Chancellor Angela Merkel at a private forum hosted by Die Welt newspaper put further pressure on the euro. Merkel spoke about Greek fiscal problems and said, “The Greek example can put us under great, great pressures. So the euro is in a very difficult phase over the coming years.”
Aussie On Track For Parity With Greenback
The Aussie dollar was the big winner vs. the greenback in today’s trading sessions. The Aussie gained as much as 0.9% against the US dollar trading at 93.28 U.S. cents, a two month high. Rising commodity prices and demand helped currency linked currencies to gain broadly. A recent Australian report said that Australian employers added 35,200 jobs in December. The Reserve Bank of Australia is widely expected to increase rates by a quarter of a percentage point at its next meeting February 2nd.
