By Satomi Noguchi
TOKYO, June 19 (Reuters) - The dollar fell against the yen
and the euro on Thursday as investors grew sceptical that the
Federal Reserve would raise interest rates aggressively, given
the weak economy and renewed worries about the financial sector.
More bad news from the financial sector the previous day
pressured the dollar as investors believed weakness in the credit
and lending system would make the Fed less likely to withdraw
liquidity from the banking system by tightening monetary policy.
Investors have trimmed expectations for Fed rate increases
later this year partly due to data this week that showed U.S.
housing starts plunged to a 17-year low in May and raised doubts
whether the economy could withstand higher rates.
"The market has been reminded about weak elements in the U.S.
economy and feels hesitant now about buying the dollar," said a
trader at a Japanese trust bank.
Some investors were disappointed by comments from the White
House spokesman on Wednesday saying it was not expecting
announcements on increased oil production from a conference in
Saudi Arabia between consumers and producers this weekend. Their
disappointment weighed on the dollar, traders said.
Many market players believe higher oil prices have a strong
correlation with a weak dollar.
The dollar edged down 0.1 percent to 107.69 yen <JPY=>,
pulling further away from a four-month high of 108.59 yen struck
earlier this week.
The euro rose 0.2 percent to $1.5560 <EUR=>. The single
European currency rose 0.1 percent to 167.56 yen <EURJPY=R>,
staying within sight of an 11-month high of 168.05 hit the
previous day on trading platform EBS.
The euro was supported after comments from a European Central
Bank official kept expectations intact for an ECB rate hike in
July, though expectations for a series of rate increases have
been scaled back in recent days.
EYES ON INTEREST RATES
ECB Executive Board Member Juergen Stark said on Wednesday
that euro zone inflation is unacceptably high and it is an
appropriate time to review interest rates.
As of Wednesday, U.S. short-term interest rate futures showed
a 48 percent chance of the Fed raising rates by 25 basis points
in August, down from 90 percent earlier this week.
U.S. crude oil prices <CLc1> dipped in Asia but stayed near
record highs near $140 par barrel after they rallied more than $2
on Wednesday.
The Swiss franc jumped to a 17-year high against the yen and
climbed against the dollar as investors braced for the Swiss
National Bank's interest rate decision later in the day.
A majority of economists polled by Reuters expect the central
bank to hold its policy interest rates steady at 2.75 percent,
but a significant minority predicted a rate rise.[]
The Swiss franc rose as high as 104.29 yen <CHFJPY=R>, the
highest level since February 1991, as the Japanese currency
struggled with market expectations for the Bank of Japan to hold
interest rates steady for a while.
The franc climbed 0.3 percent to 1.0333 per dollar <CHF=>.
Investors are selling the yen against currencies with scope
for higher interest rates since the BOJ separated itself from
central banks that are signalling a rate hike to contain price
pressures, traders said. The yen's fall against the Swiss franc
highlighted this fact, they said.
BOJ Governor Masaaki Shirakawa said on Friday that Japanese
economic and price conditions are different from those in the
United States and Europe after the central bank held rates steady
at 0.5 percent, as widely expected.
Shirakawa will give a speech later in the day in Tokyo to a
meeting of credit associations.
(Additional reporting by Masayuki Kitano)
