Fed to raise US interest rates as dollar heads for 30-year low

The Federal Reserve will raise US interest rates on Wednesday, but its vote of confidence is unlikely to halt the decline of the dollar.

As the markets turn their attention from the presidential election to the yawning US trade and budget deficits, analysts expect the dollar-selling spree to intensify.

The rise in US borrowing costs, taking them to 2 per cent, will be the latest step in the Fed's policy of undoing the rate cuts it made to underpin growth in the aftermath of the dotcom downturn.

Analysts said Friday's news that US firms hired a better than expected 337,000 workers in October set the seal on Wednesday's rate rise. 'The Fed will be very happy,' said Richard Iley, US economist at BNP Paribas. 'They'll feel re-emboldened that their policy of gradually hiking interest rates is justified.'

But the dollar touched an all-time low against the euro on Friday. Currency analysts at Smith Barney predict that, on a trade-weighted basis, the greenback could be about to fall to its lowest level in more than three decades.

When it last met, in September, the Fed said it believed the economy had 'regained some traction' after what chairman Alan Greenspan called a 'soft patch' in the summer. It is expected to reiterate that message this week, paving the way for a further increase in December.