June 27, 2003	Friday	Rabi-us-Sani 26,1424

LONDON, June 26: The dollar soared to its highest in more than a month against the euro and the Swiss franc on Thursday, on relief the US Federal Reserve took only a quarter point off interest rates in the previous session.

Some in the market had expected a more aggressive 50-basis point cut, which would have been seen as good for growth but would have eroded the dollar’s already meagre yields further.

In addition, expectations the Fed’s cut would be the last for the time being boosted the dollar against the lower-yielding Swiss franc and also against the higher-yielding euro, with euro rate cuts still seen in the pipeline.

The ECB (European Central Bank) has to cut rates so the market is betting strongly that the rate differential will narrow significantly, said Michael Klawitter, senior currency strategist at WestLB.

The euro fell by more than 0.75 per cent from the US close to hit five-week lows against the dollar of $1.1435, down four percent from record highs set only 10 days ago.

The euro also hit 10-week lows against sterling.

The dollar also leapt by more than one per cent against the Swiss franc to seven-week highs of 1.3465 francs.

Swiss National Bank chairman Jean-Pierre Roth reiterated the central bank would intervene if the Swiss franc spiked higher, saying he was aware of the problems which recent dollar weakness had caused for exporters.

The dollar rallied by nearly one per cent to one-week highs against the yen of 118.90.

Traders said the dollar’s rise against the yen was due to commercial orders on the back of broad dollar strength, rather than to intervention by Japanese monetary authorities, as they suspected was the case in European trade on Wednesday.

Japanese authorities have stepped in to buy dollars several times this year to stop the export-damaging rise of the yen.

Justifying its decision, the Fed cited recent hopeful economic signs in the United States as a reason for the more modest cut and said downside inflation risks were bigger than the upside threats.

It said it saw firmer spending, improved financial conditions and signs of stabilising labour markets.

But it also noted the economy had yet to show sustainable growth and voiced concern about the risk of deflation, leaving doubts about a US recovery in the second half of this year.

Nevertheless, analysts forecast no more easing for now.

A Reuters poll of Wall Street dealers after the Fed move found 16 out of 20 felt that the rate cut — the 13th since January 2001 — was the last for the foreseeable future.

Fed Board Governor Mark Olson was due to speak on management challenges in a low interest rate environment on Thursday.—Reuters