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Dollar rises on rate

cut speculation

NEW YORK: The dollar rose on Monday amid growing speculation that Germany's central bank may soon lower interest rates.

Traders said it is widely expected that the Bundesbank will let the securities repurchase rate fall slightly on Wednesday. Many believe that a move down in the repo rate would signal a cut in the discount rate at the Bundesbank council meeting on Thursday.

"If they do one rate, you assume they want lower rates because they have engineered lower rates," said Kevin Harris, international economist at MCM CurrencyWatch.

"So, you look for them to take an official stance at the meeting and that's what some people are expecting," added Harris. The dollar closed in the US at 91.32/42 yen, up slightly from the opening at 91.12/22 yen. It was at 1.4080/90 marks from 1.4015/20 marks at the open.

"We are seeing a sort of a pre-Bundesbank-meeting rally," said Joe Francomano, foreign exchange trader at Dai-Ichi Kangyo Bank in New York. "But I am somewhat concerned because, if they don't ease rates, the dollar could be right back down at 1.3700 marks."

Dealers noted that the dollar's rise gained momentum as it broke above the 1.4030-mark resistance level, triggering stop-loss buying. The market was also driven by cross currency trading activity, dealers said.

The mark retreated from recent highs against the yen. Meanwhile, weaker European currencies also gained ground on the powerful German currency.

"As the mark continues to weaken, people are becoming more and more optimistic about the dollar's near-term prospects," said Bruce Campbell, chief trader at First Fidelity Bank Corp. in Newark, N.J.

The dollar remained well supported against the yen, continuing to benefit from Tokyo's recent deregulatory package aimed at encouraging overseas investment.

But many traders were cautious about the dollar making further gains ahead of the US Treasury's three-part quarterly refunding, which kicks off on Tuesday.

Traders want to see if Japanese demand for US notes and bonds picks up in this week's auctions, which will total a record $42.5 billion.

However, many analysts, like Deutsche Bank's Marc Chandler, pointed out that the refunding is not the most appropriate gauge as many of Tokyo's regulatory changes would not necessarily show results immediately.

At the close, the dollar was at 1.1655/65 Swiss francs versus the opening at 1.1585/95 Swiss. It was at Canadian $1.3555/65 from C$1.3537/42. Sterling eased to $1.6000/10 from $1.6030/40. The Australian dollar closed at $0.7413/18.

At midday, the Morgan Guaranty trade-weighted index stood at 91.1 percent of its 1990 trade-weighted value.-Reuter