The dollar was little changed yesterday, having retreated from a two-week high against the Euro hit the previous day as traders believed that the US currency's rise had been a bit overdone. Investors awaited further clues on whether the US Federal Reserve will cut interest rates later this month, and caution set in ahead of a meeting of Group of Seven finance ministers next week. Analysts said the Euro's gains are likely to be limited in the near term as some European officials have voiced their displeasure with the single currency's strength ahead of the G7 meeting scheduled for Oct. 19. Forex traders will pay attention to US economic data and market developments which will determine the Dollar's direction in light of Fed rate cut expectations, which may offer some near-term support to the Dollar.
EurUsd was little changed at 1.4107, +0.43%, having rebounded from Tuesday's two-week low of 1.4015 but well off a record high 1.4280 hit on October 1st. Some currencies traders said the US currency would stay on the defensive even after strong US jobs data released late last week scaled back some expectations for a Fed rate cut this month, which had prompted a short-lived climb in the dollar. Meanwhile, some said that a rally in global stocks that helped to drive the Dow Jones industrial and the S&P 500 index to record highs on Tuesday may prompt selling of the low-yielding Yen against high-yielding currencies. AudUsd is holding near an all-time high 0.9034 and NzdUsd is trading near a two-month high 0.7675 both hit earlier this week. UsdJpy was little changed at 117.21, but stayed near an eight-week high of 117.61 hit on Monday. The Yen drifted near a 2-1/2-month low against the Australian dollar and a two-month trough versus the New Zealand currency.
Traders said the Bank of Japan's two-day policy meeting that started on Wednesday is unlikely to have a significant impact on currencies, as the central bank is widely expected to keep the overnight call rate unchanged at 0.5%.
Fed minutes on Tuesday showed that all of the central bank's board members had agreed to slash the fed funds rate by 50 basis points to 4.75% last month on concerns that a credit crunch and financial market disarray might sting the US economy. They also showed that members felt well positioned to trim rates because the inflation fears that had dominated policy concerns in prior meeting had receded. While financial markets took mixed messages from the minutes, some analysts said the minutes seemed to leave open the possibility of additional rate cuts. Analysts say they now see a roughly 50-50 chance that the Fed will announce a 25 basis point rate cut on Oct. 31.