Dollar falls to 2-month low

Jan 4 | Updated: Jan 5 2006, 06:15am hrs
The dollar fell to a two-month low against the euro and dropped versus the yen in Asia after minutes from the Federal Reserves last meeting suggested it is closer to halting an 18-month policy of raising interest rates. The number of additional rate increases needed to control inflation probably would not be large, Tuesdays release from the December 13 meeting showed. An end to the policy at a time when the European Central Bank (ECB) may be gearing to raise rates further would diminish the yield advantage that pushed the dollar up more than 14% in 2005 against the yen and euro.

With the Fed stopping, and policy elsewhere in Europe and Japan going in the opposite direction, it should be relatively positive for the euro and yen, said Harvinder Kalirai, head of research and analysis in Sydney at State Street Corp, the worlds largest custodian of assets.

The US currency was at $1.2067 versus the euro in Tokyo, after dropping to $1.2082, the weakest since November 3 and from $1.2018 in New York on Tuesday.

The dollar traded at 115.74 yen from 116.17 yen. It declined to 115.60 yen, the lowest since December 19. The euro will fetch around $1.25 by the middle of the year, Mr Kalirai said.

Fed policy makers views differed on how much further tightening might be required, the minutes said.

The measured phrasing was retained to avoid any suggestion of bigger rate increases, the ECB said. Investors are still pricing in a quarter-percentage point rise in the target rate for overnight lending between banks to 4.50% at the Feds January 31 meeting.

Bloomberg