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Dollar May Decline on Prospects Fed Will Keep Rates Unchanged
Jan 26,2010 08:29CST
data analysis

NEWYORK, Jan. 26 -- The dollar was poised to fall against its major counterparts on prospects the Federal Reserve will keep its target lending rate near zero to spur growth.

The yen may drop against higher-yielding currencies after U.S. stocks rose amid signs Ben. S. Bernanke will win a second term as the Fed chairman. The Bank of Japan is forecast to keep benchmark interest rate on hold when it completes its two-day policy meeting today.

"The dollar will struggle to rise," said Toshiya Yamauchi, manager of currency margin trading at Ueda Harlow Ltd. in Tokyo. "The market is shifting to a consensus that there will be no rate increases this year."

The dollar traded at $1.4151 per euro as of 8:36 a.m. in Tokyo, unchanged from the close in New York yesterday. It appreciated to $1.4029 on Jan. 21, its strongest level since July. The yen was at 127.79 per euro from 127.75. Japan's currency held at 90.30 per dollar from 90.28. It touched 89.79 on Jan. 22, its strongest level since Dec. 18.

The Federal Reserve is forecast to keep its key overnight rate in a range between zero and 0.25 percent tomorrow, according to the median estimate of economists in a Bloomberg News survey. Policy makers may reiterate their pledge to hold rates "exceptionally low" for "an extended period."

Futures trading in Chicago yesterday showed a 19 percent chance that the Fed will raise its target lending rate by at least a quarter-percentage point by its June meeting, down from 26.4 percent odds a week ago.

Bank of Japan

Japan's central bank will leave the target lending rate at 0.1 percent at the end of its meeting today, according to all economists surveyed by Bloomberg.

How the Bank of Japan responds in coming months will depend on the extent of any further economic shocks, such as a surge in the yen to November's 14-year high, said people familiar with the central bank's plans, who spoke on condition of anonymity.

"We expect the BOJ will add more easing as deflation deepens," said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse Group AG. "The central bank's action won't cause the yen to drop, but it should also keep the currency from rising."

The Standard & Poor's 500 Index increased 0.5 percent yesterday. David Axelrod, a senior adviser to President Barack Obama, told reporters before an appearance in Chicago that he's confident the Fed chairman will be confirmed. Bernanke will have "bipartisan support," Senate Republican leader Mitch McConnell said on NBC's "Meet the Press" on Jan. 24.


US dollar
US dollar index

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