In mid-morning trading today in Sydney, the U.S. Dollar traded mixed against major currencies as the tussle continues with respect to which of the central banks, i.e. the U.S. Federal Reserve or the European Central Bank, will aggressively fight inflation. Investors in the currency market remain divided on the short term direction of the U.S. currency following expectations that the central banks are not likely to hike rates in the near term.
The U.S. currency dropped overnight following articles in The Wall Street Journal and The Financial Times saying that some senior officials at the Federal Reserve are not in favor of an aggressive approach to rate hike this year. Prior to the publishing of the articles, the market had factored in a 25 basis point interest rate hike by year end.
On June 18, 2008 at 10:25 am (00:25 GMT), the U.S. Dollar traded at 107.98 Yen, compared to 107.92 Yen, while the Euro traded at $1.5519 compared to $1.5510 in late trading in New York.
Lorenzo Bini Smaghi, a member of the European Central Bank, has indicated that an increase of 25 basis points will be enough to reduce inflation to 2%. However, the June results of the ZEW Economic Sentiment Survey in Germany fell to its lowest in 15 years, which has raised the issue of constraint in interest rates in the Euro zone.