Tuesday December 16, 2008 - 21:28:11 GMT
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Reuters - www.reuters.com
FOREX NEWS-US dollar tumbles after Fed cuts rates to record low
* US dollar tumbles versus euro, yen after Fed rate cut
* Fed cuts rates more than expected to record low
* Fed says may keep rates at "exceptionally low levels"
* Yen nears 13-year high; boosting intervention talks
(Adds comments, details, updates prices)
By Vivianne Rodrigues
NEW YORK, Dec 16 (Reuters) - The U.S. dollar tumbled versus
the euro and the yen on Tuesday after the Federal Reserve cut
its benchmark interest rates more than expected to a record
low, further diminishing the appeal of the greenback.
The Fed cut its federal funds rate target to a range of
zero to 0.25 percent from the previous target of 1.0 percent,
and said it would use "all available tools" to dispel a
year-long recession. For details, see [ID:nTRT000354].
Financial markets had expected the Fed to lower rates by no
more than three-quarters of a point.
"The dollar is falling against all major currencies...
because it was a larger-than-expected cut," said Matt Esteve, a
foreign exchange trader at Tempus Consulting in Washington.
"On one side, we effectively have a zero interest rate in
the U.S., and on the other side, the Fed has sent a sign that
they are ready to use all tools to help the U.S. economy out of
recession," he added.
In late afternoon trading in New York, the euro was up
about 3.0 percent at $1.4099 <EUR=>, a 2 1/2-month high. It
traded as high as $1.4144, more than five cents above its
session trough of $1.3631.
The U.S. dollar had its biggest daily decline against the
Swiss franc since 1995. It last traded 3.2 percent lower
against the European currency at 1.1205 to the dollar <CHF=>.
Versus the yen, the dollar was down 1.6 percent to 89.06
<JPY=>, within a striking distance to a 13-year low against the
The Fed's rate cut pushed the fed funds target to its
lowest level on record, and the central bank said it would keep
it at "exceptionally low levels for some time."
The surprise move put the Fed in unprecedented policy
territory, but analysts mostly approved of the move.
"It's a highly unorthodox and creative step," said Michael
Woolfolk, senior currency strategist at The Bank of New York
Mellon in New York. "We think it's the best possible move for
the U.S. consumer and for the financial market."
U.S. stocks rallied after the announcement, while the
InterContinental Exchange's U.S. dollar index .DXY, which
tracks the value of the greenback against a basket of six
currencies, fell 1.8 percent to 80.628.
The Fed's rate cut move is "an incredibly strong public
declaration that the Fed will throw everything it has in
attempting to stabilize the financial and economic situation,"
Mohamed El-Erian, the chief executive of bond giant Pacific
Investment Management Co, told Reuters.
"After this 'wow' statement, there should be no question
about policy willingness," he added.
The U.S. dollar also tumbled against the Australian and New
Zealand dollars in a sign the Fed's move may be positive for
risk appetite and riskier assets.
GOLDMAN SACHS, BANK OF JAPAN
Demand for the greenback started to dwindle earlier in the
session as investors cut their exposure to risk after Goldman
Sachs (GS.N: Quote, Profile, Research, Stock Buzz) posted its first loss as a public company.
The dollar's sharp drop in recent days in particular
against the yen has raised speculation that Japan may intervene
to stem the currency's strength as it nears a 13-year high.
U.S. data released earlier on Tuesday showed new housing
starts and permits plunged to record lows in November, while
consumer prices dropped at a record rate for a second straight
month. See [ID:nN16549579]. [ID:nN15516550].
Analysts and fund managers said the very soft readings on
inflation and continued deterioration in the housing sector
support views of a very expansionary policy stance.
(Additional reporting by Steven C. Johnson, Wanfeng Zhou
and Jennifer Ablan in New York;)
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