By Chikako Mogi
TOKYO, Feb 28 (Reuters) - The dollar hovered near a record
low to the euro on Thursday after a sharp drop in durable goods
orders and home sales fuelled recession fears and Fed Chairman
Ben Bernanke signalled a readiness to cut interest rates again.
In contrast, the euro was supported by comments by ECB
Governing Council member Axel Weber, who said on Wednesday that
market expectations for the European Central Bank to cut rates
failed to take into account the dangers of higher inflation.
The German economy is solid and the euro zone economy is only
likely to slow to just below its long-term potential rate this
year, Weber said. The ECB would act if long-term inflation
expectations seemed to be rising significantly, he said.
"The euro is drawing money because prospects of a near-term
rate cut have been pushed back and fundamentals are solid, while
the dollar is destined to fall further as the market believes
U.S. credit jitters are far from being resolved ," said Hideki
Amikura, a forex manager at Nomura Trust and Banking.
Amikura said the euro could extend gains to around $1.55 in
the next couple of months, with the European Central Bank seen
avoiding cutting interest rates at least until then.
A trader at a big Japanese bank said: "The broad dollar
weakness will continue, with the likelihood of the euro hitting
more record highs because there are reasons to buy the single
currency after the hawkish remarks by Weber."
Surging commodity prices continued to underpin currencies
such as the Australian dollar <AUD=D4>, which traded near a
24-year peak against the dollar of $0.9460 after strong
investment data underlined robust demand in the economy and kept
alive chances of more interest rate hikes.
The New Zealand dollar was also near a 23-year post-float
peak of $0.8215 <NZD=D4> marked on Wednesday.
The euro eased 0.1 percent to $1.5110, just off a record high
of $1.5144 <EUR=> struck on Wednesday.
The dollar index, which tracks its performance against six
major currencies, was little changed at 74.240 <.DXY>, near a
record low 74.070 hit on Wednesday.
The dollar was little changed against the yen at 106.40 yen
<JPY=> after dipping below 106 yen on Wednesday.
DOLLAR-SELLING TREND
Traders said broad dollar selling was finally putting the
U.S. currency under selling pressure against the yen, and the
market was eyeing a push below 106 yen.
Although many in the market believe the dollar-selling trend
will continue, some traders saw a risk of a near-term correction
in the U.S. currency, given its recent drop.
"The pace of dollar losses in the past few weeks has been
quick, so we could see a readjustment in the very near term,"
said a trader at a Japanese trust bank.
The euro has surged nearly 5 percent in roughly three weeks.
But the trader said even if there is a correction, dollar
selling could accelerate next week if a raft of crucial U.S.
economic data shows that the economy continues to struggle.
Bernanke signalled further rate cuts to avert a recession,
making clear that the U.S. central bank was more worried about
risks to growth than inflation. He will continue his testimony
later on Thursday. []
All 15 Wall Street dealers surveyed in a Reuters poll on
Wednesday expected a March rate cut and saw the Fed bringing
interest rates lower than previously thought. []
The Fed has cut its benchmark overnight lending rates by 2.25
percentage points since mid-September to 3 percent, while the ECB
has kept its main rate at 4 percent.
The market showed a muted reaction to remarks by Bank of
Japan board member Atsushi Mizuno, who expressed doubts about the
effect that any interest rate cut might have in supporting the
Japanese economy, which he said was at a standstill.
Traders were eyeing German unemployment data for February due
later in the session, with analysts predicting the jobless total
will be down 50,000 on the month, as well as weekly U.S. jobless
claims, expected to have inched up in the week to Feb. 23.
(Additional reporting by Naomi Tajitsu, Editing by Michael
Watson)
