Bloomberg: Dollar Little Changed After Fed Raises Interest Rates, Alters Key Language

Dec. 13 (Bloomberg) — The dollar was little changed
against the euro, erasing a gain, after the Federal Reserve
signaled it may be approaching the end of its interest-rate
increases.

The U.S. currency also pared an advance versus the yen
after the central bank stopped saying there is “accommodation”

in its monetary policy. The Fed lifted its benchmark rate by a
quarter-point to 4.25 percent, a move predicted by every
economist surveyed by Bloomberg News.

“There will be a few more hikes, but the end of the rate
cycle is starting to become visible,” said Marios Maratheftis,
a currency strategist at Standard Chartered Plc. in London.
“The dollar will be under pressure, but any sell-off won’t be
too sharp” until the Fed drops the word “measured” from its
statement, he said.

Against the euro, the dollar traded at $1.1955 at 2:47 p.m.
in New York, from $1.1953 late yesterday, according to
electronic currency-dealing system EBS. The dollar traded at
119.91 yen, from 119.78. The dollar has advanced about 14
percent against the euro and 17 percent against the yen this
year as the U.S. rate advantage over the euro region and Japan
widened.

“The committee judges that some further measured policy
firming is likely to be needed to keep the risks to the
attainment of both sustainable economic growth and price
stability roughly in balance,” the rate-setting Federal Open
Market Committee said in its statement after meeting today in
Washington. “Core inflation has stayed relatively low in recent
months and longer-term inflation expectations remain
contained.”

The Fed has raised rates by a quarter-point at every
meeting since June 2004, when the target was at a 46-year low of
1 percent. The European Central Bank this month raised its
benchmark rate to 2.25 percent, and the Bank of Japan will this
week keep borrowing costs near zero percent, according to
economists surveyed by Bloomberg.

‘Accommodation’

All 22 primary dealers of U.S. government securities that
trade with the Fed’s New York branch expected a quarter-point
rate increase today. Twelve of the dealers in a Bloomberg News
survey last week predicted policy makers would drop the word
“accommodation” from the statement.

The yield advantage of 10-year U.S. Treasury notes over
similar-maturity German government bonds reached 1.18 percentage
point in November, the most since January 2000 and up from about
0.6 percentage point at the start of the year.

The benchmark U.S. 10-year note yield was at 4.55 percent
before the Fed announcement from 4.57 percent the last time the
Federal Open Market Committee met on Nov. 1.

Tankan Report

The yen has risen more than 1 percent since reaching a 32-
month low against the dollar on Dec. 5 and may rise on
speculation the BOJ will report rising optimism among business
leaders in a survey tomorrow.

The bank’s so-called Tankan report will show an index of
confidence among large manufacturers rose to 23 points in
December from 19 points in September, according to the median
forecast of 37 economists surveyed by Bloomberg News. A positive
number means optimists outnumber pessimists.

“It’s likely the BOJ will be raising interest rates
through 2006, and that will be supportive for the yen,” said
John Kyriakopoulos, a currency strategist in Sydney at National
Australia Bank Ltd. “The BOJ in the second quarter of next year
will start to raise interest rates.”

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