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TOKYO: The dollar was stable in Asian trade on
Tuesday as markets waited anxiously for a widely expected US
interest rate cut to cushion the world’s largest economy from its
housing slump, dealers said.
They said the pound remained
pressured by concerns about the financial health of British banks
given the troubles of lender Northern Rock which has fallen victim
to the global credit squeeze.
The dollar was slightly lower at
114.93 yen in Tokyo afternoon trade after 115.10 in New York on
Monday.
The euro edged down to 1.3860
dollars from 1.3868. Last week the European single currency hit a
record high of 1.3927 dollars on worries about the future of the US
economy and expectations of a US rate cut.
The euro eased to 159.29 yen from
159.65.
“A wait-and-see mood has spread
in the market” ahead of the Federal Reserve decision, said Yosuke
Hosokawa, head of forex at Chuo Mitsui Trust Bank.
“It is almost certain that the
Fed will cut rates but the question is by how much,” Hosokawa
said, adding that quiet trading is expected for the rest of the day
ahead of the Fed decision.
The Fed is widely expected to act
in the face of the worst housing slump in decades that has led to
rising mortgage defaults and a tightening of credit standards that
threatens the overall economy, dealers said.
Most investors expect the Fed to
trim a quarter point from the federal funds rate, which has been at
5.25 percent since June 2006, and some are calling for a bolder
half-point reduction, citing rising recession risks.
“The majority of the market is
convinced the Fed will press on the accelerator, but less sure if
the cut will be 25 basis points or 50 basis points in size,”
Commonwealth Bank of Australia (CBA) currency strategists noted.
The pound continued to suffer
from a crisis at Northern Rock—the British mortgage lender that
was bailed out by the Bank of England last week. Sterling fell to
1.9902 dollars from 1.9945 in late New York trade.
The British government vowed
Monday to protect all savings as customers queued for a third
straight day to withdraw cash from the bank, which has been hurt by
the global credit crunch sparked by problems in the US mortgage
sector.
The problems at Northern Rock
have dimmed expectations the Bank of England will raise interest
rates by a quarter point to 6.0 percent. Some analysts now expect a
cut in British interest rates in the coming months.
The Bank of Japan was also due to
begin a two-day meeting on interest rates later Tuesday but
expectations of an interest rate rise have faded in light of recent
market instability and political uncertainties.
The BOJ may not hike interest
rates through the rest of the year because of the credit market
problems and uncertainties over the domestic economy and political
situation, the Nikkei business daily reported on Tuesday.
Japan is in the midst of a
leadership battle following Prime Minister Shinzo Abe’s sudden
resignation last week.
--AFP
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