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June 7, 2006

US dollar strengthens for third straight day

Permalink: US dollar strengthens for third straight day by Elaine Frei

The US dollar strengthened for a third straight session on Wednesday as officials of the Federal Reserve continued to make comments indicating that interest rates will likely be raised again when the Fed meets later in the month. Several regional Fed presidents as well as Fed chairman Ben Bernanke have said in recent days that inflation is now at the upper end of what has been referred to as the “comfortable” range. Earlier, analysts had been convinced that the Fed would break its chain of 16 consecutive rate hikes.

The greenback added 0.4 percent to SFr1.2270 in relation to the Swiss franc, 0.2 percent to $1.2796 versus the euro, and was up 0.1 percent each against the Japanese yen and against sterling, to ¥113.37 and $1.8575 respectively. Additionally, the US currency added 0.3 percent to T$32.166 versus the Taiwan dollar and was up 0.6 percent to Won947.9 in relation to the South Korean won.

Analysts are not in agreement as to whether the dollar will continue to strengthen or whether it will begin to weaken again. While some feel that the dollar will continue to strengthen, others believe that if the Fed continues to raise interest rates, it will harm the US economy, affect the global economy, and will weaken the greenback further.

Elsewhere, comments from France’s finance minister that the euro is “fully valued” have led some analysts to discount the idea that the European Central Bank might raise interest rates by 50 basis points when it meets on Thursday, rather than by the more common 25 basis points. However, the Turkish central bank raised interest rates there by 175 basis points, sending the Turkish lira up 3.3 percent versus the euro to TL1.935. The Turkish currency has lost 25 percent to the shared currency since the beginning of the year.



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