US Federal Reserve holds interest rates steady

| October 25, 2006

The euro gained strength on Wednesday on the heels of a new business confidence survey out of Germany. The Ifo business climate index was at 105.3 in October, up from 104.9 in September. The index had been expected to drop to 104.5. Analysts said that the growth indicated in the new data encouraged the belief that interest rates in the Eurozone will reach 4 percent in 2007. While the euro remained steady at ¥149.90 versus the Japanese currency, it had added 0.1 percent to £0.6705 in relation to sterling and was up 0.4 percent to $1.2590 versus the US dollar by mid-afternoon trade in New York.

With a trade surplus wider by 6.9 percent in September compared to the same month last year due to a growth of 20.4 percent in exports to the United States and a gain of 19.8 percent in exports to China, the yen was 0.3 percent higher versus the greenback to ¥119.10. The widening was a surprise in light of analysts expectations that Japan’s trade surplus would narrow by 10.9 percent in September.

The Australian dollar was 0.4 percent higher versus the US dollar, to a six-week high of $0.7 610 on inflation that was stronger than had been anticipated. However, the New Zealand dollar dropped 0.3 percent to $0.6610 against the greenback on inflation that was lower than predicted.

Wednesday afternoon the US Federal Reserve announced that it will leave interest rates at 5.25 percent again. While the dollar weakened against the euro initially, it returned to its level before the announcement within a few minutes. The comments released with the announcement said that while some inflation risks are still present, pressures to inflation seem, to the Fed, likely to “moderate over time”. The vote to keep rates steady was 10 to 1.


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