Dollar Trades Near 2-Month High Against Yen Before Fed Meeting

happylux

 By Kosuke Goto and Yumi Teso

April 29 (Bloomberg) -- The dollar traded near a two-month high against the yen on speculation the Federal Reserve will signal tomorrow that it's close to pausing interest-rate cuts.

The U.S. currency headed for its first monthly advance versus the yen and euro since December as traders increased bets the Fed will stop reducing rates as record oil prices accelerate inflation and confidence returns to credit markets. New Zealand's dollar slid after a government report showed the nation's trade deficit unexpectedly widened in March.

``The U.S. dollar is now in a period of broad consolidation,'' said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia's fourth-largest bank. ``Data remain soft, but policy makers are becoming more hawkish on inflation risks.''

The dollar traded at 104.27 yen at 11:11 a.m. in Tokyo from 104.19 yen in New York yesterday when it reached a two-month high of 104.82 yen. It was also at $1.5639 per euro from $1.5657. The euro traded at 163.07 yen, after closing at 163.11 yesterday.

Currency trading volume today may be about 70 percent of normal levels because of a public holiday in Japan, said Rennie.

The dollar has risen 2.3 percent from a record low against the euro of $1.6019 touched April 22 when Fed Bank of Dallas President Richard Fisher said he was concerned that inflation may build into ``a full-blown virus.''

Fisher voted against Federal Open Market Committee interest-rate cuts at the Jan. 30 and March 18 meetings. Crude oil climbed to a record $119.93 a barrel yesterday in New York, raising speculation prices will increase in the world's biggest importer of the fuel.

Dollar Index

The U.S. currency traded at $1.9902 against the British pound from $1.9914, and was at 1.0345 versus the Swiss franc from 1.0338. The Dollar Index traded on ICE futures in New York, which tracks the currency against those of six trading partners, rose to 72.535 from 72.504 yesterday. It dropped to a record of 70.698 on March 17.

Futures on the Chicago Board of Trade show a 20 percent chance that the Fed will hold the target rate for overnight lending between banks at 2.25 percent tomorrow at the conclusion of its two-day meeting, compared with 6 percent odds a week ago. The balance of bets is for a reduction of a quarter-percentage point to 2 percent. There is a 68 percent chance the rate will be held at that level at the Fed's June meeting.

Resistance Levels

Gains in the dollar may stall at 106.60 yen, said Masashi Kurabe at Bank of Tokyo-Mitsubishi UFJ Ltd., citing charts that traders use to predict price movements.

The so-called resistance level for the dollar is a 38.2 percent reversal of its decline to a low of 95.76 on March 17 from a high of 124.13 on June 22, based on the Fibonacci series of numbers. Resistance is a level where sellers may outweigh buyers.

``The dollar may reach that level in one month, but will face strong resistance around there,'' said Kurabe, head of the foreign-exchange sales and trading group in Hong Kong at Japan's second-largest bank by assets.

The New Zealand dollar fell against all 16 of the most- traded currencies as the trade deficit widened amid a decline in exports of meat and logs, while soaring oil prices buoyed imports. The currency slid to 78.16 U.S. cents from 78.60 cents in New York yesterday. It dropped to 81.56 yen from 81.90 yen.

European Central Bank President Jean-Claude Trichet reiterated yesterday that he's concerned about a surge in the euro against the dollar, according to an interview with the Austrian state broadcaster. He added that the ECB's ``responsibility'' is to ``preserve price stability in the medium and long term.''

ECB policy makers have held the main refinancing rate at a six-year high of 4 percent since June to contain inflation. The U.S. central bank has cut the fed funds target by 3 percentage points since September to prevent banks' reluctance to lend from plunging the economy into a recession.

`Favors the Euro'

``The ECB probably won't cut and even if the Fed halts its cuts, the current interest-rate differential favors the euro,'' said Takashi Yamamoto, chief trader at Mitsubishi UFJ Trust & Banking Corp. in Singapore, a unit of Japan's second-largest lender by assets. ``It's definitely easier to buy the euro than to buy the dollar. The euro may remain supported by the interest-rate gap.''

The euro may reach about $1.60 in the next one month, Yamamoto said.

The Conference Board may report today that U.S. consumer confidence probably fell to the lowest level since 1993, according to the median forecast of 66 economists surveyed by Bloomberg News. The group's index likely declined to 61.1 in April, from 64.5 percent the previous month. The research group is scheduled to release the data at 10 a.m. New York time.

``The trend for the dollar may remain bearish as even if the Fed pauses after this month, the next move will still be a cut,'' said Sadaaki Kondou, assistant general manager of treasury at Mizuho Corporate Bank Ltd. in Taipei, Japan's third- largest bank by assets. ``The credit crunch won't be solved so soon and that may slow consumption and investment and will cool the economy.''