Dollar Little Changed vs. Euro on US Rate Outlook

The dollar was little changed against the euro and down against the yen Monday with investors finding few reasons to change their view that more Federal Reserve interest rate cuts are imminent.

Dollar and Euro
Dollar and Euro

Investors remain on edge about fallout from the credit crunch as the approaching year-end may force investors to dump assets or scramble for cash to get their books in order amid market strains.

Worries about the U.S. economy and expectations for repeated Federal Reserve rate cuts have caused the dollar's broad tumble to accelerate against low-yielding currencies such as the yen and Swiss franc, as well as versus the euro.

"The market is still concerned about credit and Fed cuts," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. "There is no change in the perception of the dollar."

Late morning in New York, the euro was little changed at $1.4839, still within sight of the all-time high of $1.4966 set on Friday according to Reuters data.

A growing number of analysts suggest the exchange rate will breach the psychologically key $1.50 level this year.

"We suspect that having pushed euro/dollar to within a whisker of a key psychological level, the market's appetite has now been whet for a move above and beyond 1.50 and a fairly busy week's data schedule offers up no shortage of potential catalysts in this respect," said Neil Mellor, a London-based currency strategist at Bank of New York Mellon, in a note to clients.

The dollar fell 0.1 percent from late last week to 108.23 yen moving closer to Friday's low of 107.53 yen, the lowest since June 2005.

The euro was little changed against the yen at 160.64 yen .

Eyes on Policymakers

European officials have increasingly expressed concern about the euro's rapid rise and the potential drag on exporters.

ECB Governing Council member Nout Wellink said on Monday that the euro's rise against the dollar was not of "immediate concern" for European exporters, but a further ascent would be "worrying".

ECB Executive Board Member Lorenzo Bini Smaghi said over the weekend that the current euro/dollar rate does not exactly reflect economic fundamentals, and the U.S. economy is stronger than is reflected in the exchange rate.

French President Nicolas Sarkozy called on Chinese President Hu Jintao to let the yuan rise faster versus the euro.

"I think we are getting close to a period of the ECB being a little bit more vocal in terms of trying to slow the pace of euro/dollar rally, but for now it seems there's very little in terms of actions which are going to preclude the euro/dollar from continuing to trade higher," said Jeremy Stretch at Rabobank in London.

Fan Gang, an adviser to China's central bank, said the dollar's recent fall and the subprime mortgage crisis in the United States are adding to pressure for the Chinese yuan to appreciate.