Dollar claws back as markets digest Fed rate cut
The dollar bounced off a record low against the euro in Asian trade on Wednesday, recovering some of its heavy losses seen in the wake of the Federal Reserve's hefty interest rate cut, dealers said.
By Agencies |
TOKYO: The dollar bounced off a record low against the euro in Asian trade on Wednesday, recovering some of its heavy losses seen in the wake of the Federal Reserve's hefty interest rate cut, dealers said.
The euro slipped to $1.3966 in Tokyo morning trade from 1.3976 late Tuesday in New York where it hit a record high of 1.3988.
The dollar was steady at 116.04 yen after 116.05 while the euro dipped to 162.04 yen from 162.26.
The US central bank slashed its benchmark interest rate on Tuesday for the first time since June 2003, lopping off 50 basis points to 4.75 per cent to ease distress in credit markets and cushion the economy from the housing slump.
"The Fed showed clearly its responsibility towards the subprime mortgage problems that have spread across the world," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo.
Although a rate cut could make the dollar less attractive to buyers because of lower returns on US assets, "the fact that on the contrary it is being bought signifies investor risk appetite is returning," he added.
The dollar initially fell against most currencies in response to the US rate cut, but managed to recover some ground in Asian trade as stocks rallied.
Dealers said the bold half-point cut had boosted demand for carry trades by investors selling low-return currencies such as the yen to buy high-yield currencies like the Australian and New Zealand dollars.
Markets are now speculating about the chances of further US rate cuts. "With US economic prospects not too bright and problems in the subprime mortgage market expected to continue for some time, there is a strong possibility that the Fed will continue to cut rates," said Muramatsu.
Investors will continue to scrutinise the results of major US banks this week to gauge their exposure to mortgage-backed assets. Positive third quarter financial results from Lehman Brothers Tuesday gave the market some relief.
The Bank of Japan was due to announce the outcome of its two-day monetary policy meeting at which it was widely expected to leave its key rate unchanged at 0.5 per cent given worries about the global economy and a credit squeeze.
Political uncertainties following the abrupt resignation of Prime Minister Shinzo Abe last week is also expected to deter the BoJ from hiking its super-low interest rates again yet.
"Political uncertainty, the global credit crunch and the continuing poor numbers from Japan are all deterring factors from expecting any change" in Japanese interest rates, GFT financial analyst Ian Copsey said.
The euro slipped to $1.3966 in Tokyo morning trade from 1.3976 late Tuesday in New York where it hit a record high of 1.3988.
The dollar was steady at 116.04 yen after 116.05 while the euro dipped to 162.04 yen from 162.26.
The US central bank slashed its benchmark interest rate on Tuesday for the first time since June 2003, lopping off 50 basis points to 4.75 per cent to ease distress in credit markets and cushion the economy from the housing slump.
"The Fed showed clearly its responsibility towards the subprime mortgage problems that have spread across the world," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo.
Although a rate cut could make the dollar less attractive to buyers because of lower returns on US assets, "the fact that on the contrary it is being bought signifies investor risk appetite is returning," he added.
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The dollar initially fell against most currencies in response to the US rate cut, but managed to recover some ground in Asian trade as stocks rallied.
Dealers said the bold half-point cut had boosted demand for carry trades by investors selling low-return currencies such as the yen to buy high-yield currencies like the Australian and New Zealand dollars.
Markets are now speculating about the chances of further US rate cuts. "With US economic prospects not too bright and problems in the subprime mortgage market expected to continue for some time, there is a strong possibility that the Fed will continue to cut rates," said Muramatsu.
Investors will continue to scrutinise the results of major US banks this week to gauge their exposure to mortgage-backed assets. Positive third quarter financial results from Lehman Brothers Tuesday gave the market some relief.
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The Bank of Japan was due to announce the outcome of its two-day monetary policy meeting at which it was widely expected to leave its key rate unchanged at 0.5 per cent given worries about the global economy and a credit squeeze.
Political uncertainties following the abrupt resignation of Prime Minister Shinzo Abe last week is also expected to deter the BoJ from hiking its super-low interest rates again yet.
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"Political uncertainty, the global credit crunch and the continuing poor numbers from Japan are all deterring factors from expecting any change" in Japanese interest rates, GFT financial analyst Ian Copsey said.
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