Dollar slips in Asia amid murky economic outlook

May 15, 2008

, TOKYO, May 15 – The dollar softened in late Asian trade on Thursday amid uncertainty about the outlook for the US economy and interest rates, dealers said.

The dollar inched down to 104.87 yen in Tokyo afternoon trade from 105.03 in New York late on Wednesday.
The euro gained to 1.5497 dollars after 1.5470 but was stable at 162.49 yen.

A recent change in market views on the outlook for US monetary policy has been supporting the dollar against the yen in recent days, said Mitsubishi UFJ Securities forex manager Minoru Shioiri.

"A growing number of investors are now even betting that the Fed may start raising interest rates before the end of this year. But unless we have hard evidence that the US economy is picking up, it is not realistic to bet on a turnaround in the Fed\’s monetary policy," he added.

A US government report said the consumer price index (CPI) rose 0.2 percent in April, as energy costs stabilised after sharp gains earlier this year.

The rate was a slightly lower than expected but analysts said rising energy and food prices were likely to stoke inflationary pressures in the coming months.

"It is hard for traders to know how to digest the CPI report," said Osamu Takashima, a currency analyst at the Bank of Tokyo-Mitsubishi UFJ.

"If it is interpreted that inflation is really a great problem, then it would hurt the dollar. But if it\’s seen as a benevolent factor in support of a Fed rate hike in the future, then it would support the dollar," he said.

The Fed has slashed 3.25 percentage points off its base rate, taking it to 2.0 percent, in a series of cuts since September to ease a credit squeeze and revive the sputtering economy.

Traders showed little reaction to news that Japan\’s core machinery orders fell 8.3 percent in March from the previous month.

The figures "were not good, but did not move the market," Takashima said.

Against regional Asian currencies, the dollar edged up to 1.3827 Singapore dollars from 1.3769 a day earlier, to 9,315 Indonesia rupiah from 9,286 and to 42.83 Philippine pesos from 42.82.

It rose to 30.98 Taiwan dollars from 30.96, while holding steady at 1,047 South Korean won and 32.48 Thai baht.

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