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Dollar falls as market factors in Fed rate hike

The dollar was easier in Asian trade on Thursday as the market looked past the latest US inflation report.

india Updated: Jun 15, 2006 10:54 IST

The dollar was easier in Asian trade on Thursday as the market looked past the latest US inflation report which reinforced expectations of a rate hike and instead focused on a Bank of Japan meeting, dealers said.

They said that while no change in monetary policy is expected from the Bank of Japan, all eyes are on the meeting to see what may happen to governor Toshihiko Fukui who has become embroiled in a fund management scandal.

The US currency slipped to 114.93 in the Tokyo morning trade from 115.04 late on Wednesday in New York.

The euro rose to 1.2601 dollars from 1.2597 and to 144.94 yen from 144.87.

US data overnight showing rising consumer inflation was seen boosting the chances that the Federal Reserve will keep hiking interest rates—a major concern that has rattled stock markets for more than a week.

But now dealers said the forex market has already factored in that the Fed will hike its key rate by another quarter-point to 5.25 per cent at its June 28-29 policymakers meeting.

"Since another interest rate rise has been already factored in, players were taking a break and stopped chasing the dollar," said Nobuaki Kubo, planning manager at market trading office at Resona Bank.

"However, dollar-buying sentiment remains strong in the mid-and long-run as inflation concerns in the United States are not disappearing for now," Kubo said.

The market instead focused on the Bank of Japan, which winds up its two-day meeting on Thursday. The central bank is widely expected to end Japan's unconventional zero-interest rate policy later this year.Few, however,expect the decision to come this month.

"There should not be any surprise but players just want to see if there is anything related to (Bank of Japan governor) Fukui," Kubo said.

Fukui has been under fire in a financial ethics scandal over his investment to the fund of controversial manager Yoshiaki Murakami who was arrested last week on insider trading charges.

Fukui is scheduled to appear before parliament and speak later in the day following the bank's meeting.

He has said he invested 10 million yen in Murakami's fund in 1999, a year after Fukui quit the central bank in an unrelated scandal, and earned unspecified profits before cancelling the contract several months ago.

First Published: Jun 15, 2006 10:54 IST