Thursday, August 31, 2006

Forex - US dollar mixed in Sydney morning; cautious ahead of ECB, Bernanke

SYDNEY (XFN-ASIA) - The US dollar was trading higher against the yen but down on the euro as currencies tread water ahead of tonight's European Central Bank meeting and a speech by Federal Reserve chairman Ben Bernanke, dealers said.

They said no change in official interest rates is expected by the ECB, but possible surprises in the central bank's accompanying statement or in Bernanke's speech is keeping traders cautious.

At 10:27 am Sydney time, (0027 GMT), the US dollar was at 117.24 yen, up from 117.15 yen in late New York trade while the euro was at 1.2839 usd, up from 1.2833 usd.

National Australia Bank strategists said traders appear to be boosting carry trade bets with the fading expectations of another rate hike by year-end in the US and Japan.

They said the implied probability of another Federal Reserve interest rate hike has fallen to just 18 pct from near 30 pct at the start of the week, while the euro hit a fresh record high above 150.00 yen overnight.

But, the NAB strategists warned, "this trade is looking very crowded with speculative investors holding a record net long euro/yen position."

Dealers said the US dollar continued to range-trade overnight, holding between 116.80-117.30 yen and the euro was held in a 1.2810-1.2845 usd band.

They said data released overnight was consistent with the Federal Reserve's view that US economic growth is slowing.

This included the upward revision to US gross domestic product growth in the second quarter to 2.9 pct which was below market expectations of a revision to 3.0 pct.

Meanwhile, dealers said the key inflation gauge favoured by the Federal Reserve - the core measure of personal consumption expenditure (PCE) prices -was revised down to 2.8 pct from the earlier reported 2.9 pct.

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