Friday, February 29, 2008


The risk of a dollar ``downside overshoot'' is growing as the Federal Reserve's interest-rate cuts leave it ``out of sync'' with other central banks seeking to temper inflation, according to Bank of America Corp.

The dollar touched $1.5229 per euro today, the weakest since the common currency began trading in January 1999. It has tumbled about 5 percent in the past three weeks as speculation mounted the Fed will lower borrowing costs again next month for the sixth time since September. It was at $1.5218 per euro at 3:07 p.m. in New York, from $1.5120 yesterday.

``Fed easing policy that is out of sync with other central banks is not supportive of'' the dollar, Robert Sinche, Bank of America's head of global currency strategy in New York, wrote in a research note dated today.

The dollar's decline gained momentum this week after Fed Vice Chairman Donald Kohn said on Feb. 26 that turmoil in credit markets and the possibility of a slower economy pose a ``greater threat'' than inflation. The Fed's benchmark rate is 3 percent.

In contrast, European Central Bank President Jean-Claude Trichet today said ``price stability is a necessary condition'' for ongoing economic expansion and employment. The ECB next meets on March 6 to decide on the main rate, which is at 4 percent.

A euro rally to a range of $1.55 to $1.57 is now ``increasingly likely,'' Sinche said in the note.

Some central banks, including China's and Hungary's, may also allow their currencies to appreciate versus the dollar as a way to reduce inflation pressure from rising commodity prices, which are often priced in dollars, Sinche wrote.


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