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  • Feb 3rd, 2005
  • Comments Off on Dollar ends broadly flat ahead of FOMC decision
The dollar exited active New York trading on Tuesday largely flat against major currencies, with dealers unwilling to take big bets ahead of the Federal Reserve's interest rates decision on Wednesday. Although dealers said the Fed is almost certain to raise rates again by a quarter-percentage point, according to most market estimates, they preferred to minimise their exposure and risk to that and other upcoming events.

Those include the US employment report for January and a speech on the US current account from Fed Chairman Alan Greenspan on Friday as well as the meeting of Group of Seven finance ministers and central bankers in London on Friday and Saturday.

"We're just not going anywhere - this is featureless trading," said John McCarthy, director of foreign exchange trading at ING Capital Markets in New York.

"The market got a bit short of euro when it looked like it might break below $1.30, and long of dollars when it looked like it was going to go above 104.00 yen," McCarthy said. "But nobody wants to do anything ahead of the rate decision tomorrow."

Short positions are effectively bets a currency will weaken, while long positions are bets a currency will strengthen.

The dollar shrugged off a key US manufacturing report on Tuesday because although the headline index slipped a bit, it was close enough to consensus not to trigger heavy dollar selling. In addition, the employment component rose strongly.

The euro was off a touch at $1.3025 from $1.3032 late in New York on Monday.

The euro's downside against the dollar was largely offset by its 0.2 percent rise against the yen and Swiss franc to 135.32 yen and 1.5530 francs.

Foreign demand for European bonds was strong on Tuesday, helping support the euro, dealers said.

The dollar was flat against the yen at 103.69 yen and up a touch at 1.1901 Swiss francs, while sterling was unchanged at $1.8836.

The Institute for Supply Management's index of manufacturing activity in January came in at 56.4, slightly below December's 57.3 and economists' forecasts of 57.0. But the employment component jumped to 58.1 from 53.3, a potentially encouraging sign for the dollar ahead of the payrolls data on Friday.

A reading above 50 denotes expansion and below 50 indicates contraction.

Economists surveyed by Reuters expect the US economy created 190,000 new jobs in January, more than the 157,000 created the previous month.

"We're in a week where there is too much data and too many events and that can result in paralysis," said David Durrant, chief currency strategist at Julius Baer in New York.

Meanwhile, the Australian dollar recovered most of its overnight losses sparked by soft trade data, as dealers covered positions ahead of the Reserve Bank of Australia's decision on interest rates.

The RBA is widely expected to leave its cash rate unchanged at 5.25 percent.

By late New York trading on Tuesday, the Australian dollar had recovered to trade broadly unchanged at $0.7746.

Copyright Reuters, 2005


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