Investors’ Expectations of Federal Reserve Rate Cuts is Fading

Investors’ expectations of additional rate cuts are fading which helped the U.S. Dollar which traded mixed in Tokyo on Wednesday against major currencies.  The expectations of additional rate cuts faded following comments by officials of the Federal Reserve about inflation pressures.  Janet Yellen, President of the Federal Reserve Bank in San Francisco, California, said that the recent figure on inflation is “disappointing” and that the consumer inflation rate is too high, even if food and energy prices are excluded.

On May 14, 2008 at 03:00 GMT in Tokyo, the U.S. Dollar traded at 104.63 Yen versus 104.71 Yen, while the U.S. Dollar gained against the Euro, which traded at $1.5459 in late trading in New York.

Surging oil prices, coupled with better than expected data on retail sales, support the expectation that the rate cutting cycle by the Federal Reserve Bank may be coming to an end soon.  Oil prices surged to $126.98 per barrel in New York, before retreating to $125.80 per barrel.

According to the U.S. Commerce Department, the latest data on retail sales, excluding automobiles, rose by 0.5%, which is better than the 0.2% predicted by most economists.