By Satomi Noguchi
TOKYO, June 17 (Reuters) - The dollar fell against the euro
and the yen on Tuesday after a media report that Federal Reserve
officials believe financial markets have gone too far in their
forecasts for higher U.S. interest rates.
Market expectations for the Fed to boost rates three or four
times by the end of the year do not seem to match the balance of
views within the central bank, the Financial Times said in its
online edition on Tuesday. []
Traders said the FT report was one of several similar media
reports since Monday that have prompted investors to trim
dollar-long positions they had accumulated last week on mounting
expectations the Fed will raise rates to curb price pressures and
inflation expectations.
The euro rose against the dollar and the yen, supported by
data that showed record euro-zone inflation in May and cemented
expectations the European Central Bank would hike interest rates
next month.
"Market players are using those reports about the Fed rate
outlook as an excuse to trim their positions after the dollar had
made strong gains last week," said a trader at a Japanese trust
bank.
The euro climbed 0.5 percent from late U.S. trade on Monday
to $1.5540 <EUR=>, pulling further away from the one-month low of
$1.5303 struck on Friday on trading platform EBS.
Against the Japanese currency, the euro hit an 11-month high
of 167.84 yen, before trimming gains to 167.55 yen <EURJPY=R>, up
0.1 percent on the day.
On Monday, data showed that euro zone inflation rose to an
all-time high of 3.7 percent in May from a year earlier,
suggesting that a July ECB rate hike is almost certain, analysts
said.
The dollar fell 0.3 percent to 107.85 yen <JPY=>, slipping
further from a four-month high of 108.59 yen struck the previous
day.
The Australian dollar trimmed earlier gains after minutes
from the Reserve Bank of Australia's board meeting in June
suggested the central bank would likely keep rates on hold in the
near term. []
The minutes showed that the RBA concluded rates were high
enough to cool the economy and restrain inflation.
The Aussie was up 0.3 percent at $0.9430 <AUD=D4>.
MORE INFLATION DATA
The Wall Street Journal said on Tuesday that the Fed did not
appear to see a compelling case for raising rates in the next few
months unless the inflation outlook deteriorates considerably.
[]
That came after a column in The Washington Post on Monday
that said Fed Chairman Ben Bernanke does not intend to raise U.S.
rates because he is more worried about soaring oil prices slowing
global growth than he is about such prices stoking inflation.
[]
"The euro and the dollar are in a tug of war as the ECB is
seen ready to raise rates while the Fed doesn't seem able to move
rates as quickly due to the fragile state of the economy," said
Seiichiro Muta, a director of forex distribution at UBS in Tokyo.
The dollar had posted last week its strongest weekly gain
against a basket of currencies in three years, after an array of
anti-inflation talk from the Fed, including from chairman Ben
Bernanke, while U.S. Treasury Secretary Henry Paulson did not
rule out intervention as a tool to stem the currency's slide.
For more clues about the monetary policy paths at the Fed and
the Bank of England, investors were awaiting inflation data from
both the United States and the United Kingdom due later in the
day.
Britain's consumer price inflation jumped to 3 percent in
April and analysts expect soaring petrol and food prices to have
lifted it to 3.2 percent in May. Such a reading would be the
highest since comparable records began in January 1997, and could
boost sterling <GBP=>. []
Traders said the dollar could face more selling if quarterly
results from Goldman Sachs <GS.N> due later on Tuesday turn out
worse than forecast and remind investors the credit crisis isn't
over.
Lehman Brothers <LEH.N> posted a $2.8 billion quarterly loss
on Monday and dented the dollar, though the result was in line
with the investment bank's forecast last week.
(Editing by Brent Kininmont)
