Forex - Dollar rose on year-end buying momentum
The Dollar rose against the Euro on Monday, boosted by year-end transactions as well as speculation that US inflation may cause the Federal Reserve to be less aggressive in cutting interest rates next year.
But tight credit conditions and fear of slower US growth weakened the Dollar elsewhere, with the Yen and Swiss franc rising as investors unwound carry trades that involve borrowing these currencies to fund purchases of higher-yielding assets.
The Fed is still expected to lower rates in 2008 to shield the economy from a slumping housing market, but analysts think price pressures could force fficials to adopt a slower pace of monetary easing. This would not significantly erode the Dollar’s yield advantage, since global growth worries are likely to prompt other major Central Banks to cut rates or hold them steady. Interest rate futures are reflecting about a 90% implied chance of a 25bp interest rate cut in January, down from around 100% last week.