Wednesday October 29, 2008 - 22:08:25 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar posts biggest daily fall in 23 years
* US dollar sees biggest daily fall since 1985
* Federal Reserve cuts rates by 50 bps as widely expected
* US stock markets end slightly lower
(Recasts, updates prices, adds quotes, changes byline)
By Wanfeng Zhou
NEW YORK, Oct 29 (Reuters) - The U.S. dollar posted its
biggest one-day fall in 23 years on Wednesday, with the Federal
Reserve delivering an interest-rate cut, easing investor
concern about the world economy and reducing the need to
repatriate dollars from riskier markets.
The Federal Open Market Committee lowered its key interest
rate by a half-percentage point to 1.0 percent, the lowest
level since 2004, in a move to prevent a widening financial
market crisis from tipping the U.S. economy into a prolonged
U.S. stocks ended slightly lower, after a huge gain on
Tuesday, and a slide to a five year low earlier this month.
"Even a modest down day on stocks would be considered a
victory for risk appetite in the bigger scheme of things, after
yesterday's major gains," said Alan Ruskin, chief international
strategist at RBS Global Banking & Markets in Greenwich,
"(The Fed) leaves the door open to further rate reductions,
though plainly they are running out of interest rate bullets,"
In late New York trading, the euro was up 1.9 percent
against the U.S. dollar <EUR=> at $1.2953. Against the yen, the
euro rose 0.3 percent to 125.97 yen, well above recent six-year
lows below 114 yen <EURJPY=>.
The Intercontinental Exchange's dollar index of major
currencies was down 2.7 percent .DXY, its worst day since
The Fed is expected to lower benchmark interest rates
further in the months ahead given a downbeat economic outlook
in the Fed's policy statement on Wednesday.
Interest-rate futures contract prices reflect another
quarter-point rate cut at the December Fed meeting, which would
take the federal funds rate to 0.75 percent for the first time
since 1958, with an outside chance that rates could be cut to
0.50 percent. For more, see [ID:nN29539648].
The yen and the Swiss franc, on the other hand, rose
against the dollar as market sentiment remained fragile against
a deteriorating global economic backdrop.
The U.S. dollar was down 1.5 percent against the yen <JPY=>
at 97.26 yen, having gained more than 6.0 percent on Tuesday,
its biggest one-day rise in 34 years.
Vassili Serebriakov, currency strategist at Wells Fargo,
said the Fed's "as expected" move may have disappointed those
looking for a surprise.
"We believe that the Fed's actions can ultimately do little
to reverse the global deleveraging/repatriation pressures," he
said, in a note. "Thus, equity market bounces will essentially
remain corrective while the dollar and the yen should continue
finding buyers on pullbacks."
Samarjit Shankar, global FX strategist at The Bank of New
York Mellon in Boston, said the next thing the market will
focus on is the European Central Bank meeting next week, which
is expected to provide investors with clues about futures
interest moves in the euro zone.
"There is still a lot of uncertainty in the markets. Risk
aversion is still very much in place. That would be dollar
supportive in general, although right now you're seeing a lot
of choppy price action," Bank of New York Mellon's Shankar
In other parts of the world, monetary policy has been a
dominant theme too. China's central bank cut benchmark lending
and deposit rates by 0.27 percentage point on Wednesday. In
Japan, speculation grew that the Bank of Japan could cut rates
on Friday to boost the flagging economy.
(Additional reporting by Gertrude Chavez-Dreyfuss;)
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