Fed issues inflation warning
The dollar rose against the euro yesterday following the release of Federal Reserve minutes showing that policy setters believe that inflation may continue at current rates.
The dollar foreign exchange was trading at 1.25 against the euro by 16.00 yesterday and had fallen to 119.70 yen from 119.72 yen earlier in the day.
The minutes could be "further confirmation of recent suspicions the market had gotten ahead of itself in pricing in an ease," said a Bank of New York analyst before the release.
The odds on a rate reduction by 2007 fell to four per cent after the notes were published, down from eight per cent previously and 46 per cent at the end of September.
"The Fed is putting a tough face on inflation," Shaun Osborne, chief currency strategist at TD Securities in Toronto, told the International Herald Tribune.
"They don't want inflation to be entrenched in the economy. People are slowly realizing that it is too early to price in a rate cut in the next few months.
"Interest rates are going to stay high in the U.S. for quite a while."