Dollar dives to new low against euro after Fed rate cut
The dollar slides to new lows against the euro and the pound after the US Federal Reserve cut a quarter-point from interest rates.
By Agencies |
NEW YORK: The dollar slid to new lows against the euro and the pound on Wednesday after the US Federal Reserve cut a quarter-point from interest rates.
The single European currency topped the $1.45 level for the first time, reaching $1.4504 after the Fed's widely anticipated short-term rate cut to 4.50 per cent.
Around 2200 GMT, the euro was at $1.4480, up from $1.4439 here late on Tuesday.
The dollar edged up to 1.1583 yen from 1.577 but fell heavily against the pound. The British currency rose to $2.0809 in late trade from $2.0676 on Tuesday. Earlier it had climbed to a record $2.0811.
The Fed, as widely expected, lowered its base federal funds rate by a quarter of a percentage point to 4.50 per cent.
In an accompanying statement to its second rate cut in as many months, the Federal Open Market Committee said that although financial market turmoil linked to a US housing downturn had eased in part, "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.
"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time."
The Fed slashed its federal funds rate by a half point to 4.75 per cent on September 18 to ease a credit crunch tied to the housing slump.
Kathy Lien, chief strategist of Forex Capital Markets, said the latest Fed move was "giving the financial markets exactly what they wanted and nothing more."
"Over the next three to six months we are still looking for the EURUSD to rise above $1.50", she added.
Speculation mounted about whether the Fed would cut rates again in December.
"Even the idea of a pause in December doesn't support the dollar," said David Gilmore, an analyst at Foreign Exchange Analytics.
"Even if there is a pause, most people feel the Fed will be back cutting rates in the first quarter 2008. The market thought the economy was worse than the Fed believed."
Andrew Busch of BMO Capital Markets also predicted the dollar was headed lower.
"This action and statement may ignite a much larger US dollar sell-off," Busch said.
"While some would say that the structure of the US yield curve strongly suggests that short-term rates are too high, I believe that long-term rates are too low and don't reflect the stronger-than-expected economic growth and a Federal Reserve strongly erring on the side of additional liquidity."
Eurozone borrowing costs stand at 4.00 percent, following a long rise from 2.0 per cent that began in December 2005. British interest rates currently stand at 5.75 per cent.
The single European currency topped the $1.45 level for the first time, reaching $1.4504 after the Fed's widely anticipated short-term rate cut to 4.50 per cent.
Around 2200 GMT, the euro was at $1.4480, up from $1.4439 here late on Tuesday.
The dollar edged up to 1.1583 yen from 1.577 but fell heavily against the pound. The British currency rose to $2.0809 in late trade from $2.0676 on Tuesday. Earlier it had climbed to a record $2.0811.
The Fed, as widely expected, lowered its base federal funds rate by a quarter of a percentage point to 4.50 per cent.
In an accompanying statement to its second rate cut in as many months, the Federal Open Market Committee said that although financial market turmoil linked to a US housing downturn had eased in part, "the pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction.
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"Today's action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time."
The Fed slashed its federal funds rate by a half point to 4.75 per cent on September 18 to ease a credit crunch tied to the housing slump.
Kathy Lien, chief strategist of Forex Capital Markets, said the latest Fed move was "giving the financial markets exactly what they wanted and nothing more."
"Over the next three to six months we are still looking for the EURUSD to rise above $1.50", she added.
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Speculation mounted about whether the Fed would cut rates again in December.
"Even the idea of a pause in December doesn't support the dollar," said David Gilmore, an analyst at Foreign Exchange Analytics.
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"Even if there is a pause, most people feel the Fed will be back cutting rates in the first quarter 2008. The market thought the economy was worse than the Fed believed."
Andrew Busch of BMO Capital Markets also predicted the dollar was headed lower.
"This action and statement may ignite a much larger US dollar sell-off," Busch said.
"While some would say that the structure of the US yield curve strongly suggests that short-term rates are too high, I believe that long-term rates are too low and don't reflect the stronger-than-expected economic growth and a Federal Reserve strongly erring on the side of additional liquidity."
Eurozone borrowing costs stand at 4.00 percent, following a long rise from 2.0 per cent that began in December 2005. British interest rates currently stand at 5.75 per cent.
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