TOKYO, Nov 7: The dollar fell against the yen on Wednesday as a recent trend of dollar consolidation ran its course, despite a 50-basis point rate cut by the United States Federal Reserve, traders said.
The greenback traded at 121.09-11 yen in Tokyo Wednesday, against 121.19 yen in New York and 121.54-56 yen in Tokyo late Tuesday.
We’re just in this consolidation phase now, said Kenneth Landon, senior currency strategist at Deutsche Bank in Tokyo. But I think the rate cuts by the Fed are actually going to be good for the dollar against the yen.
After the consolidation is over, we’re going to see a test of the upper side of that range to 123 (yen), breaking above there and maybe getting to 125 certainly by the end of the year.
There’s probably a little bit of resistance on dollar/yen from short-term players, said Landon. They’re getting a little bit fed up. A lot of people were hoping the dollar/yen would test the upside of the 125-range. Some of those may be liquidating.
The Federal Reserve slashed key interest rates to their lowest level in 40 years and left the door open to more rate reductions on Tuesday. The half-point cut sent the federal funds rate to two per cent from 2.5 per cent, and the symbolic discount rate to 1.5 per cent from 2.0 per cent.
The Federal Open Market Committee cited heightened uncertainty and concerns about a deterioration in business conditions both here and abroad, as justification for the move.
The market is also gearing up for an expected rate cut by the European Central Bank (ECB) on Thursday, with the euro strengthening slightly against the dollar, but slipping against the yen.
The euro bought $0.9025-27 compared with $0.8943 in New York and $0.8974 in Tokyo late Tuesday.
Against the yen, the euro was quoted at 109.35, against 108.42 in New York and 109.12 in Tokyo Tuesday afternoon.
Landon said action by the Fed, which has now trimmed 150 basis points off interest rates since September 11, stands in stark contrast with the ECB, which will have achieved a 75-point reduction over the same period if it goes ahead with an expected 25 basis point cut on Thursday.
The fact that the Fed has been so aggressive in cutting rates is definitely putting the spotlight on the need for central banks to be proactive, said Landon. And the ECB has been sitting on its hands.
However, he said, If they actually cut rates, I wouldn’t be too excited about it, but I think that would put some support on the euro/dollar.
A dealer with BNP Paribas in Singapore said euro/dollar trading was quiet, ranging from 0.8940 to 0.8960, as the market has already factored in the Fed cut.
In late Singapore trade, the US dollar fell to 51.9100 Philippine pesos from 51.975 on Tuesday, 44.640 Thai baht from 44.6850 and 10,645 Indonesian rupiah from 10,790.
The greenback also tumbled to 1.8183 Singapore dollars from 1.8241, 34.5195 Taiwan dollars from 34.522 and 1,292.40 South Korean won from 1,295.50.—AFP