Dollar slips after Fed, market awaits ECB meet

LONDON: The dollar slipped on Wednesday, retreating from a seven-week high versus the euro after the Federal Reserve suggested it was in no hurry to raise interest rates, countering some views for a rise in coming months. The dollar's losses were limited by the continuing slide in oil prices, however, and it hovered near its highest level against the yen in more than a month and a half. The Fed kept rates at 2 per cent as widely expected, with Dallas Fed President Richard Fisher the sole policymaker dissenting in favour of a rate hike, contrary to expectations that one other official might join him. "The Fed didn't offer a significantly new stance on policy, as some in the market had been expecting, which prompted some selling in the dollar," said Kikuko Takeda, currency economist at BTM UFJ. "It shows that the euro's slide against the dollar in past sessions may have been overdone." But she added that oil's retreat from a record high last month was limiting dollar losses, while keeping it boosted versus the yen, given that lower oil prices are considered good news for the United States, the world's largest oil consumer. With the Fed meeting over, investors awaited Thursday's meeting of the European Central Bank, which is expected to hold rates at 4।25 per cent after raising them last month. The ECB is expected to underline its concern about surging inflation, although a weak economy is seen deterring it from raising rates for the time being. Meanwhile Germany will release figures on June industrial orders at 1000 GMT on Wednesday. Forecasts are for a 0.4 per cent rise in factory orders on the month, partly reversing a 0.9 per cent drop in May. The euro rose about 0.3 per cent to the day's high of $1.5516 on position adjustments in the run-up to the ECB meet. The pair kept its distance from a seven-week low of $1.5447 hit according to Reuters data on Tuesday. The dollar index, which tracks the US currency's movements against the currencies of major trading partners, slipped 0.2 percent to 73.825, pulling back from 73.990 touched on Tuesday for the first time since mid-June. The dollar was little changed against the yen at 108.30 yen, having climbed as high as 108.54 yen earlier in the day, as US crude prices held near a three-month low touched on Tuesday. At 0744 GMT, prices were up a touch at $119.41 per barrel. Market participants suspected that the technically crucial 108.60 yen level may act as a ceiling for dollar/yen gains for now, while a break through there would open the door to a climb to levels not seen in six months. Many analysts expect ECB President Jean-Claude Trichet to maintain his inflation-fighting stance in his comments to reporters after the central bank's rate announcement. Despite a slowing economy, global commodity prices have driven euro zone inflation to a record high, and while the ECB is seen reiterating that its rate bias remains "neutral", hawkish remarks from Trichet could not be ruled out, they said, even as oil prices retreat. "The rise in inflation expectations is probably more pronounced in the euro zone, keeping the ECB on a hawkish note," UBS analysts said in a research note. "The price of oil has now fallen almost 30$/bbl from July highs but the Governing Council may decide that more time is needed before a peak in inflation can be confirmed." (ET)