Wednesday March 19, 2008 - 12:59:16 GMT
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Reuters - www.reuters.com
FOREX NEWS - Dlr falls as banking worries overshadow Fed cut
(Changes byline, updates prices, adds quotes and comment)
By Simon Falush
LONDON, March 19 (Reuters) - The dollar weakened broadly on
Wednesday and the yen rallied as worries about the global
financial sector snuffed out a brief boost to risk appetite
inspired by the Federal Reserve's 75 basis point rate cut.
The Fed lowered its federal funds target rate on Tuesday by
75 basis points to 2.25 percent which fuelled a relief rally in
equities, a tightening in a broad range of spreads and a rebound
in the dollar.
But the rise in risk appetite proved short-lived, with
equities firmly moving back into the red on Wednesday, while
among currencies the low-yielding yen and safe-haven Swiss franc
resumed their rallies.
Investors remained concerned about the health of the banking
sector despite taking some brief comfort from stronger than
expected earnings reported by Lehman Brothers (LEH.N: Quote, Profile, Research) and
Goldman Sachs (GS.N: Quote, Profile, Research) on Tuesday and Morgan Stanley (MS.N: Quote, Profile, Research) on
"It's swinging one way and then the other," said Daragh
Maher, senior currency strategist at Calyon.
"The market mood is locked into (the banking worries) and
there are amplified moves as things are so opaque."
By 1154 GMT the euro was up 0.5 percent at $1.5699, still
two cents below Monday's record peak of $1.5904 <EUR=>.
The dollar was down 0.9 percent against the yen at 99.68 yen
<JPY=>, after trimming losses following the Morgan Stanley
results. It hit a 13-year trough of 95.71 yen on Monday.
The dollar was also down 0.6 percent against the safe haven
Swiss franc at 0.9960 francs <CHF=>.
Minutes from the Bank of England's Monetary Policy Committee
that showed two of nine policymakers favoured a rate cut this
month added to speculation that UK rates are heading lower soon.
That, coupled with data showing an unexpected easing in wage
inflation and worries about the health of Britain's bank, helped
push sterling back towards Monday's record lows versus the euro.
"The minutes confirmed an easing psychology from the
MPC...and softer than expected labour market figures reopen the
case for a cut in rates as early as April which is why sterling
has fallen," said Audrey Childe-Freeman, European economist at
CIBC World Markets.
The pound fell as low as $1.9951 <GBP=> and the euro rose to
as high as 78.82 pence, close to historic peaks and more than 7
percent higher so far this year <EURGBP=>.
Meanwhile the outlook for the dollar looks bleak with lower
interest rates set to further cut the currency's yield appeal.
In its statement on Tuesday the Fed indicated it could cut
rates again, even though two voting members dissented against
the depth of the latest move.
A Reuters poll showed that all primary dealers surveyed
after the Fed announced its rate decision expect it to lower
interest rates in April [FED/R]. Futures markets attached a 94
percent probability of a 50 basis point cut to 1.75 percent
(Editing by Ian Jones)
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