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Forex - Dollar extends losses on speculation Fed will lower rates further
HONG KONG (Thomson Financial) - The US dollar extended losses against the euro and the yen in afternoon trade in Asia on Thursday on speculation the Federal Reserve will lower interest rates further in the first quarter of 2008. 'Generally, the dollar is weak. After this week's rate cut, the Fed is not done yet. We are expecting two more rate cuts, one in January and another one in March,' said Philip Wee, a strategist at DBS Bank. 'The housing slump in the US is creating more rate cut expectations.' At 1.00 pm (0500 GMT), the dollar was quoted at 111.83 yen, down form 112.13 in Sydney this morning and from 112.19 in late New York trade. The euro is trading at 1.4725 dollars, up from 1.4713 this morning and 1.4708 last night. The Fed lowered its key rates by 25 basis points on December 11, bringing total reductions this year to one percentage point. Lower rates discourage investors from holding or buying dollar-denominated assets, weakening the greenback. 'We are seeing some central banks reducing their dollar holdings and diversifying into other currencies because of the dollar's weakness,' said Wee. 'The diversification is part of their currency management.' The Fed is likely to cut rates by another 50 basis points in the first three months of next year, he said. Also weighing the dollar were comments made yesterday by Guy Quaden, Governor of the Belgian National Bank and European Central Bank (ECB) governing council member, that the bank is 'seriously concerned' about inflation. 'The current situation is not satisfactory with regards to the inflation rate and prospects for the short term are also not satisfactory,' Quaden said. The inflation rate in the eurozone area accelerated to 2.6 percent in October from a year earlier, faster than the 2.1 percent gain in September. The ECB has set a 2 percent inflation target for 2007. 'There is a view that the ECB is itching to hike rates again to address the fact that inflation is running well above its 2 percent target, but are waiting for the credit markets to settle before pulling the trigger,' said John Noonan, analyst at Thomson IFR. The decision by the Fed, ECB, Bank of England, Swiss National Bank and Bank of Canada to ease funding pressures heightened speculation that the ECB will raise interest rates. Hong Kong 1pm (0500 GMT) US dollar 111.83 yen 1.1330 sfr Euro 1.4725 usd 164.71 yen 1.6687 sfr 0.7190 stg Sterling 2.0473 usd 229.01 yen 2.3198 sfr Australian dollar 0.8826 usd 0.4310 stg 98.71 yen New Zealand dollar 0.7857 usd [email][email protected][/email] . je/ng COPYRIGHT Copyright Thomson Financial News Limited 2007. All rights reserved. The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.