FX round-up: Dollar unsettled by Bear bailout

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Date: Monday 17 Mar 2008

LONDON (ShareCast) - A tame US inflation report and news that Bear Stearns has had to be bailed out had the dollar on the ropes again Friday, while strong data in Europe gave the euro a boost.

Investors expect the Federal Reserve to cut rates again this week after the Labor Department said consumer prices were unchanged in February against expectations of a 0.3% gain.

The central bank is being tipped to chop borrowing costs by 75 basis points, taking the short-term rate to 2.25%, although some think an extra 25 basis point cut is on the cards.

Friday’s news that investment bank Bear Stearns has been saved by emergency short term funding from JP Morgan Chase and the New York Federal Reserve reignited credit fears.

Wall Street tumbled, leaving the greenback lower against the European currency after EU statistics office Eurostat revised its euro zone inflation rate for February upwards to 3.3% from a provisional estimate of 3.2%.

That is expected to give the European Central Bank all the excuse they need to keep eurozone borrowing costs unchanged.

Sterling advanced versus the euro and hit a three-month high against the dollar, but eased back later on.

All eyes will be on this week’s February UK inflation data and minutes from this month's Bank of England policy meeting when interest rates were left at 5.25%.

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