WSJ: Dollar Still Supported By Fed; Pound Hit By Data
By Nicholas Hastings
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The Federal Reserve's surprise decision to increase the discount rate Thursday was keeping the dollar well supported in Europe Friday.
However, the U.S. currency had backed down a little from earlier highs as the market now waits for any further data or Fed comments that might give some hint about the central bank will raise its Fed Funds target.
Fed officials were quick to warn that the discount rate move was largely technical and didn't signal any tightening in monetary policy. The Fed had warned last week that this would be the first rate move.
Nevertheless, the move is still being seen as a milestone indicating that U.S. banks probably don't need any more of the emergency funding that the discount window provides.
Stuart Bennett, senior foreign exchange strategist at Credit Agricole in London, reckoned that the move "is likely to be interpreted as firing the start pistol on a move to a less accommodating policy."
He said that although the process may take a very long time "the fact that it seems to have started should underpin the dollar as long as economic data continues to point to recovery, albeit a gradual one".
The market will now be looking to see if the latest consumer price index out of the U.S. later in the day will in any way accelerate the need for a policy tightening. The data is forecast to show a 0.3% monthly rise in CPI in January, faster than the 0.1% increase in December.
However, once higher gas prices are stripped out, the core CPI is expected to have risen by only 0.1%, the same as in December.
While Fed policy is dominating sentiment, the problems of Greece and other debt-laden euro-zone countries continues to weigh on the euro. The market awaits evidence that either Greece is bowing to European Union pressure to introduce more austerity measures, or that other euro-zone countries have also employed derivatives to help them conceal debt.
The euro did get some help, though, from the latest purchasing managers surveys for the region. The composite index for the euro zone as a whole, covering both manufacturing as well as service industries, remained unchanged at 53.7 in February, instead of falling to 53.4 as forecast.
Gains were predicted to be limited as the prevailing debt problems are expected to ensure that the European Central Bank doesn't move to exit its ultra-weak monetary policy for some time to come.
The pound, meanwhile, fell to a nine-month low of $1.5350 as U.K. retail sales came in showing a much worse-than-expected 1.8% fall last month. Forecasters had been looking for the bad weather to have pushed sales down only 0.5% on the month.
By 1030, the pound has rebounded from its lows to trade at $1.5380 but was still down from late Thursday in New York at $1.5575, according to EBS.
The dollar was steady at Y91.83 from Y91.80 while the euro fell to $1.3498 from $1.3527.
The euro was also down at Y123.90 from Y124.25. The dollar was up at CHF1.0859 from CHF1.0829.
-By Nicholas Hastings, Dow Jones Newswires; 44 20 7842 9493; nick.hastings@dowjones.com
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