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Fed could help dollar
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June 26, 2000: 12:57 p.m. ET
An interest-rate hike will help dollar, while leaving rates alone could hurt it
By Gordon Platt
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NEW YORK (CNNfn) - The dollar could tumble if the Federal Reserve leaves rates unchanged at its meeting Tuesday and Wednesday, currency traders and analysts said.
If the Fed opts for a quarter-percentage point increase, however, the dollar could strengthen, they said.
 "Trading this week will be overshadowed by the Fed meeting," said Bob Lynch, currency strategist at Paribas.
"While there have been some obvious signs of slowing in the U.S. economy, market participants want to see additional evidence confirming the slowdown," Lynch said.
Looking beyond the Fed meeting, he said, the next key U.S. economic report will be the June employment report, to be released July 7.
"U.S. economic releases covering the June-July period should show some rebound in activity, which should help the dollar," according to a report by
Chase Securities.
If the Fed stands pat this week, as most observers expect, U.S. money market rates may continue to rise. Chase analysts expect the Fed to raise rates by 25 basis points in August, marking the final tightening in the current cycle.
Stronger-than-expected euro zone economic data failed to support the euro last week. After forming an interim top at 97 U.S. cents, the euro has slipped back, breaking support at 93.50 cents early Monday.
"Europe still has the same problems that drove the euro from its initial highs of $1.17 to its low of 88.50 cents," said Dennis Gartman, editor and publisher of The Gartman Letter.
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European labor unions are far too powerful, and European governments are far too collectivist and intrusive, Gartman said. European workers are still not likely to move to where the jobs are, he said, and language barriers and cultural differences remain.
"But all of these problems are well known," Gartman said. "They have been openly debated for a very long while."
Gartman said the market fully discounted the negatives when it pushed the euro to its record low of 88.49 cents on May 4.
"The first rush from the bottom is always corrected, " he said. "The early bulls are always tested."
The euro is consolidating its recent substantial gains, said Lynch of Paribas.
"The next big question is whether we get further signs of U.S. weakness," he said.
Yen is still struggling
The dollar weakened against the yen Friday, as concern heightened about the Bank of Japan eliminating its zero interest rate policy.
"There is speculation that the BOJ could raise rates as early as July," Lynch said. "I'm not convinced, however, that this bout of yen strength is going to be maintained that much longer."
The yen rose to 104 to the dollar ahead of Sunday's lower house elections in Japan, in which the ruling Liberal Democratic Party suffered a setback, but maintained a majority. The yen weakened early Monday to above 105 to the dollar.
With the quarter-end flows nearing an end, and with the election out of the way, analysts said the market will begin to focus on Japan's economic fundamentals, which are not that strong.
"The Japanese economy is closer to a self-sustaining recovery, but it's not there yet," Lynch said.
He predicted that the yen will weaken to around 107 to the dollar by early July.
Analysts said the next "tankan" report on Japanese business sentiment, to be released July 4, could show continued improvement. While Japanese businessmen are more confident, the country's consumers still appear reluctant to spend.
Japan's employment report for May is due Friday. The unemployment rate rose to 4.8 percent in April, the highest since 1953, when the current method of compiling data began. 
--Gordon Platt is a freelance columnist writing about currency markets for CNNfn.com
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