Dollar edges lower against euro after Fed minutes

AP News
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Posted: Apr 05, 2011 4:57 PM
Dollar edges lower against euro after Fed minutes

The dollar fell against the euro on Tuesday after minutes from the Federal Reserve's meeting last month indicated that there probably won't be a hike in interest rates anytime soon.

The euro rose to $1.4245 late Tuesday from $1.4216 late Monday. It had been weaker earlier in the session, falling as low as $1.415, after China said it would hike interest rates for the fourth time since October.

"There hasn't been any shift in tone from the Fed," said Camilla Sutton, chief currency strategist at Scotia Capital in Toronto. "The minutes didn't reflect the hawkish Fed member speeches from last week."

Central banks raise interest rates to help counter inflation, and higher rates on government bonds tend to increase demand for the currency linked to that country or region. The Federal Reserve has kept the benchmark U.S. rate near zero since December 2008. But due to recent concerns about rising prices for oil and food, investors had speculated that the Fed may lift rates.

Minutes of the Fed's March meeting, released Tuesday, showed that officials raised concerns that a big jump in energy prices could weaken the economy and unleash inflation, prompting a few to suggest the possibility of tightening credit this year. But no such move was specified, and another group of Fed members, presumably the majority, said the Fed might need to keep holding interest rates at record low levels beyond this year.

The euro has been climbing most of the year, gaining nearly 3 percent since early March and hitting a five-month high on Monday. Investors expect the European Central Bank to raise the key interest rate for the 17 countries that use the euro to 1.25 percent from 1 percent, where it has stood since May 2009, because of the threat of inflation from climbing energy and food prices. The ECB meets on Thursday.

On Tuesday, credit ratings agency Moody's said that Portugal will likely be the third European country to need a bailout as it downgraded the country's debt rating. Greece and Ireland have already received emergency aid.

The dollar was mixed in other trading Tuesday after a report from the Institute for Supply Management showed the service sector expanded at a slower pace in March than in February. The dollar gained to 84.88 Japanese yen from 84.04 yen, but the British pound rose to $1.6294 from $1.6125.

The U.S. currency dipped to 96.33 Canadian cents from 96.77 Canadian cents, and rose to 0.9260 Swiss franc from 0.9235.