Wednesday December 17, 2008 - 13:52:47 GMT
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Reuters - www.reuters.com
FOREX NEWS-Dollar pressured broadly after bold Fed move
* Dlr hits 2-1/2 mth low vs euro, near 13-year lows vs yen
* Fed's historic rate cut seen keeping dollar weak
* BoJ seen cutting rates later in the week
(Adds quotes, updates prices)
By Veronica Brown
LONDON, Dec 17 (Reuters) - The dollar fell broadly on
Wednesday, hitting a 2 1/2-month low against the euro and
closing in on a 13-year trough versus the yen after the Federal
Reserve slashed interest rates to between zero and 0.25 percent.
The euro climbed as high as $1.4192 according to electronic
trading platform EBS in Asian trade, after the Fed said it would
use "all available tools" to battle recession after cutting the
fed funds rate from 1.0 percent to a record low.
It added that it was mulling possible purchases of
longer-term U.S. Treasury debt and would consider other ways to
tap its burgeoning balance sheet to stimulate the flagging
The announcement and statement hastened broad selling in the
dollar, helping the euro register a staggering 11 percent gain
on the month to date.
"The Fed had an explicit commitment that they will leave
interest rates very low for an extended period and that's quite
negative for the dollar because of relative interest rates,"
said Adarsh Sinha, currency strategist at Barclays Capital in
"I guess the question now is: is this the beginning of a big
move for the dollar, say euro/dollar to $1.60?"
By 1225 GMT, the dollar had fallen 0.3 percent on the day to
88.70 yen <JPY=>, hovering close to a 13-year low of 88.10 yen
hit on trading platform EBS last week.
The euro dipped to $1.4065 <EUR=>, but stayed in sight of an
earlier two-and-a-half month high of $1.4192 hit on EBS during
Asian trade. The dollar fell 0.2 percent against a basket of six
major currencies to 80.022 .DXY.
Yen gains versus the U.S. currency helped to push the euro
down 0.5 percent to 124.75 yen <EURJPY=>.
Sterling faced pressure as the argument for more aggressive
British interest rate cuts became compelling, with euro/sterling
hitting a record high at 92.06 pence <EURGBP=>. For latest
report click on [GBP/].
FOCUS ON BOJ, MOF
The yen has rocketed in recent months as investors unwound
carry trades, cutting exposure to riskier and higher-yielding
assets as the financial crisis mushroomed.
It rose again as the Fed's move brought U.S. interest rates
below the Bank of Japan's target for the overnight call rate --
now at 0.30 percent -- for the first time in well over a decade.
This has increased speculation that the BoJ will cut
interest rates to almost zero following its two-day meeting
which ends on Friday.
Analysts say Japan's central bank may also follow the Fed
into buying commercial paper outright or purchasing asset-backed
"With rates in Japan now higher than Fed rates, this puts
further downward pressure on dollar/yen," Bank of America G10
currency strategist David Powell said.
"It also increases the possibility that the BoJ will cut
rates by 20 basis points on Friday," he added.
Two-thirds of analysts polled by Reuters now expect the BoJ
to cut rates this week, and most of them see rates falling to
0.1 percent from the current 0.3 percent. [ID:nT238594].
The yen's gains prompted Naoyuki Shinohara, Japan's top
financial diplomat, to declare on Wednesday that rapid movements
in currency markets are undesirable [ID:nTKU003256].
Market players say they remain wary about the risk of Japan
intervening to rein in the yen's climb, which is hurting the
(Additional reporting by Jessica Mortimer in London)
(Reporting by Veronica Brown; Editing by Patrick Graham)
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