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US dollar firmer on hopes Fed

Sunday, January 20, 2008

HONG KONG (Thomson Financial) - The US dollar was firmer against the yen and euro in afternoon trade in Asia Monday on hopes that interest rate cuts and government measures will spur growth in the US economy.

On Friday President Bush unveiled a 145 billion US dollar package of measures including tax breaks and higher spending to keep the economy from tipping into recession.

The Federal Reserve is widely expected to lower its key rates by half a percentage point when policy makers meet on Jan 29-30. Earlier, some investors were speculating that there would be an inter-meeting cut of at least 25 basis points, followed by a reduction of 50 basis points at the Fed's regular meeting next week.

"The currency market is highly anticipating that the US economy will turn around faster with the combination of rate cuts and the economic stimulus package," said Mark Wan, chief analyst at Hang Seng Investment Services Ltd.

At 1.00 pm (0500 GMT), the dollar was at 106.87 yen, up from 106.81 in Sydney this morning. The euro was buying 1.4532 dollars, down from 1.4600.

The Fed has lowered interest rates by a cumulative one percentage point since September to ease the credit crunch and calm the nerves of investors. The dollar plunged against major currencies and fell to record lows versus the euro because of the rate cuts, which made assets denominated in the US currency less attractive.

US investors who liquidated their investments abroad and repatriated the funds also supported the greenback today.

"We feel that the main factor supporting the US dollar is repatriation flows by US investors who were heavily invested overseas in the belief that the US economy and US dollar were in a weakening trend and the rest of the world's economies were motoring along beautifully," said John Noonan, an analyst at Thomson IFR.

"Fears that the US malaise will spread globally have those investors taking off those bets," Noonan said.

The IMF expects the US economy to grow 1.9 percent this year, matching its estimate for 2007, but less than the 2.9 percent expansion in 2006.

Trading was tepid because the US financial markets are closed today for a public holiday Monday.

Elsewhere, the Australian dollar was buying 87.61 US cents, down from 88.06 cents.

Previously, the Australian dollar strengthened after Reserve Bank of Australia governor Glenn Stevens made some hawkish comments on interest rates in a speech in London on Friday.

Stevens said the central bank's board remains concerned about the outlook for inflation, which is likely to remain "uncomfortably high" in the near term.

Hong Kong 1.00 pm (0500 GMT)

US dollar

106.87 yen

1.1043 sfr

Euro

1.4532 usd

155.34 yen

1.6059 sfr

0.7449stg

Sterling

1.9513 usd

208.39 yen

2.1551 sfr

Australian dollar

0.8761 usd

0.4488 stg

93.57 yen

New Zealand dollar

0.7591 usd

Posted by MOHAMED SAID at 9:56 PM  

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