By Satomi Noguchi
TOKYO, Feb 21 (Reuters) - The dollar was little changed
against the yen and the euro on Thursday, smarting from
expectations the Federal Reserve will keep slashing interest
rates to prevent the U.S. economy from suffering a sharper
downturn.
In its quarterly forecast, the Fed cut its economic growth
forecast for 2008 due to the deepening housing slump and tight
credit, saying the risks of further setbacks were worrisome.
[]
Analysts believe the Fed is bracing for the possibility of
further deterioration in the economy and is prepared to cut
short-term rates even further after slashing them by a total of
125 basis points to 3.0 percent last month.
Market players see the Fed cutting rates by 50 basis points
at its next meeting in March, which would further erode the
dollar's yield appeal. <FEDWATCH>
But traders were reluctant to sell the dollar on doubts about
how aggressively the Fed can cut rates with inflation still high
after data on Wednesday showed a surprisingly big rise in U.S.
consumer prices.
At the same time, the potential for more trouble at U.S.
financial firms from the credit market turmoil remained a threat
to the dollar.
"The market looks as if it is closing its eyes to the
deteriorating credit conditions with the groundless hope that
someone will somehow keep it from getting worse," said a deputy
general manager of currency trading at a Japanese trust bank.
The dollar was little changed from late U.S. trade at 108.10
yen <JPY=>, having edged up to the day's high of 108.19 yen on
electronic trading platform EBS.
Traders said strong dollar buying by technical funds was seen
overnight, pointing to a possible further rise in the dollar
against the yen as those players cover short positions.
But suspicions that Japanese exporters would sell the dollar
on any rise above 108.30 yen as they repatriate overseas earnings
capped the U.S. currency's gains.
The euro edged up to the day's high of $1.4733 <EUR=> before
pulling back to around $1.4710, unchanged on the day. The single
European currency <EURJPY=R> was also steady at 159.05 yen.
PHILLY FED AHEAD
A 3 percent jump in Tokyo's Nikkei share average <>
after a rise on Wall Street overnight kept demand intact for
risky carry trades, buoying higher-yielding currencies against
the yen.
In carry trades, investors borrow funds in the low-yielding
Japanese currency to buy higher-yielding currencies and assets.
The Australian dollar was steady at 99.30 yen, <AUDJPY=R> in
sight of a two-month high hit earlier this week. The Aussie held
firm just below a three-month high, hovering around US$0.9186
<AUD=D4>, bolstered also by record-high gold prices.
Traders hardly reacted to data on Thursday showing Japan's
exports rose more than expected in January from a year earlier,
as solid demand from Asia and Europe cushioned soft exports to
the United States. []
On the U.S. data front, investors will watch weekly jobless
claims for fresh clues on the health of the labour market, as
well as the Philadelphia Fed's February business activity survey.
Economists expect factory activity index in the U.S.
Mid-Atlantic region to come at -11.0 in February after it plunged
to -20.9 in January and sparked fears that recession has taken
hold nationally.
"The market will be looking cautiously to economic data and
comments from officials for clues on whether the economy is in a
recession or not," said Kengo Suzuki, a currency strategist at
Shinko Securities.
(Additional reporting by Naomi Tajitsu, Editing by Michael
Watson)
