US dollar mixed after Thai coup; Fed meeting in focus Wednesday, September 20, 2006
NEW YORK- The dollar traded mixed Tuesday as news of a coup in Thailand prompted investors to turn away from risky assets, and traders looking ahead to a Federal Reserve announcement on US monetary policy.
At 2100 GMT, the euro fell to 1.2675 usd from 1.2705 usd late Monday in New York.
The dollar stood at 117.71 yen, compared with 117.91 yen late on Monday.
Reports from Thailand said a state of emergency had been declared after an apparent military coup, with plotters said to have taken control of all six of the kingdom's public television stations, as well as radio stations.
The news sparked selling in the Thai baht and quickly spread to other Asian and Latin American currencies as the news caused investors to curb their risk appetite, with the Australian dollar also falling to a day low of 0.7515 against its US counterpart.
"It's been a long time since the word contagion has been in use but the events in Thailand could prove to be just that if players decide to take risk off the table by taking money off on their other emerging market trades," said Divyang Shah at IDEAglobal.com.
The US dollar benefited from the news meanwhile, erasing some of its earlier losses which came in the wake of weaker-than-expected US housing starts and inflation data which further reduced the chances of the Federal Reserve raising interest rates any further.
Jamie Coleman at Thomson IFR Markets said the trouble in Thailand was likely to spark jitters in financial markets, particularly as the Thai devaluation of July 1997 was the catalyst for the Asian financial crisis.
The initial dollar reaction during that crisis was a period of dollar strength, he noted, followed by a weakening as Asian nations repatriated foreign holdings.
"This present crisis looks contained, but few felt a devaluation by a small country would have such profound impact around the world for more than a year in its wake," he cautioned.
The yen made a sharp recovery after Monday's selloff, which came after the Group of Seven made no specific reference to the Japanese currency.
Ian Gunner at Mellon Financial said the yen saw "a dramatic turn of fortune" after comments by Japanese Finance Minister Sadakazu Tanigaki who dismissed the notion of a secret deal between Japan and the euro zone on exchange rates.
In the United States, the Federal Reserve was widely expected to keep its key interest rate unchanged at 5.25 pct at its meeting on Wednesday, but market will be looking for clues on future moves by the central bank.
A report Tuesday showed US wholesale prices edged up 0.1 pct in August, in a further sign of easing inflation pressures.
Peter Morici, an economist at the University of Maryland School of Business, said inflation may be even less of a problem as a result of the decline in energy costs in recent weeks.
"Since early August, crude oil prices have fallen nearly 15 usd a barrel and gasoline has dropped more than 50 cents a gallon," he noted.
"Inflation should cool significantly in September and October, and the Fed should become more comfortable, keeping interest rates at current levels."
In late New York trade, the dollar stood at 1.2512 sfr after 1.2505 Monday. The pound was being traded at 1.8813 usd from 1.8802.
At 2100 GMT, the euro fell to 1.2675 usd from 1.2705 usd late Monday in New York.
The dollar stood at 117.71 yen, compared with 117.91 yen late on Monday.
Reports from Thailand said a state of emergency had been declared after an apparent military coup, with plotters said to have taken control of all six of the kingdom's public television stations, as well as radio stations.
The news sparked selling in the Thai baht and quickly spread to other Asian and Latin American currencies as the news caused investors to curb their risk appetite, with the Australian dollar also falling to a day low of 0.7515 against its US counterpart.
"It's been a long time since the word contagion has been in use but the events in Thailand could prove to be just that if players decide to take risk off the table by taking money off on their other emerging market trades," said Divyang Shah at IDEAglobal.com.
The US dollar benefited from the news meanwhile, erasing some of its earlier losses which came in the wake of weaker-than-expected US housing starts and inflation data which further reduced the chances of the Federal Reserve raising interest rates any further.
Jamie Coleman at Thomson IFR Markets said the trouble in Thailand was likely to spark jitters in financial markets, particularly as the Thai devaluation of July 1997 was the catalyst for the Asian financial crisis.
The initial dollar reaction during that crisis was a period of dollar strength, he noted, followed by a weakening as Asian nations repatriated foreign holdings.
"This present crisis looks contained, but few felt a devaluation by a small country would have such profound impact around the world for more than a year in its wake," he cautioned.
The yen made a sharp recovery after Monday's selloff, which came after the Group of Seven made no specific reference to the Japanese currency.
Ian Gunner at Mellon Financial said the yen saw "a dramatic turn of fortune" after comments by Japanese Finance Minister Sadakazu Tanigaki who dismissed the notion of a secret deal between Japan and the euro zone on exchange rates.
In the United States, the Federal Reserve was widely expected to keep its key interest rate unchanged at 5.25 pct at its meeting on Wednesday, but market will be looking for clues on future moves by the central bank.
A report Tuesday showed US wholesale prices edged up 0.1 pct in August, in a further sign of easing inflation pressures.
Peter Morici, an economist at the University of Maryland School of Business, said inflation may be even less of a problem as a result of the decline in energy costs in recent weeks.
"Since early August, crude oil prices have fallen nearly 15 usd a barrel and gasoline has dropped more than 50 cents a gallon," he noted.
"Inflation should cool significantly in September and October, and the Fed should become more comfortable, keeping interest rates at current levels."
In late New York trade, the dollar stood at 1.2512 sfr after 1.2505 Monday. The pound was being traded at 1.8813 usd from 1.8802.
Labels: Forex News, US Dollar
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