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Dollar Weakens as Fed Stands Pat on Rates By Daniel Bases In its post-meeting statement, the Fed note continuing weakness in U.S. job creation, which has dulled the prospect of higher interest rates any time soon. Higher rates would make dollar-based assets more attractive to foreign investors. "With U.S. rates set to remain low for months to come and U.S. yields remaining relatively unattractive ... this should be supportive for the euro versus the dollar," said Rebecca Patterson, currency strategist at J.P. Morgan Chase in New York. The euro bounced up and down after the Fed's statement, trading to a session low around $1.2239 (EUR=: Quote, Profile, Research) , according to Reuters data, before climbing back to the unchanged mark of $1.2271. Patterson said topside resistance for the euro is around $1.2385. "Recall that in the last statement the Fed said other indicators are leading to an improvement in the labor market. The Fed has dropped that completely and now all they're saying is that the labor market is lagging ... So this statement is mainly dollar-negative," said Richard Franulovich, senior currency strategist at Westpac Banking Corp in New York. The dollar was already down sharply against the yen on market speculation the Japanese Ministry of Finance could be poised to cut back on its large yen-selling/dollar-buying intervention operations. Japan has kept the dollar from plunging by being a steady buyer of dollars to offset speculative selling of greenbacks and keep the yen from strengthening. Japanese officials denied any change in currency policy, although a comment by Bank of Japan Governor Toshihiko Fukui that irregular currency moves had abated was interpreted by some as indicating a more relaxed stance on the yen's strength. Japan's Nikkei Financial Daily reported late on Monday that Japan may stop currency intervention. "The BOJ (Bank of Japan) isn't there, so the dollar's going to fall," said Ralph DelZenero, vice president for foreign exchange at Bank One in Chicago. "Markets are trying to see what's down there and they're not seeing Japanese names. They think the dollar is worth closer to 100 yen than 110," he added. Haruhiko Kuroda, special adviser to Japanese Prime Minister Junichiro
Koizumi, said in Washington on Tuesday that Japan was responding
to domestic policy concerns through currency interventions, given
the negative impact a stronger yen has on falling domestic prices.
The euro gained from the dollar's weakness, shrugging off an unexpectedly sharp fall in German investor expectations. Germany's ZEW institute said its gauge of economic expectations fell in March, for the third straight month, to its lowest level since last summer. It blamed the fall on concerns over the pace of Europe's economic recovery, particularly after last week's deadly bombings in Madrid. The dollar traded at 1.2777 francs (CHF=: Quote, Profile, Research) , down 0.20 percent while sterling rose 0.34 percent to $1.8116.
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