FOREX-Dollar slips to 15-yr low, high-yielders up
(Changes byline, updates prices, adds quotes)
By Gertrude Chavez-Dreyfuss
LONDON, Sept 19 (Reuters) - The dollar dropped to a fresh 15-year low against a basket of currencies, while high-yielders such as the New Zealand dollar rallied on Wednesday, as risk appetite returned after a half percentage point cut in U.S. interest rates.
The Federal Reserve slashed the fed funds rate to 4.75 percent from 5.25 percent to help boost a slowing U.S. economy and relieve strains in money markets. The move has diminished the allure of dollar-denominated assets, sparking broad selling in the greenback.
However the dollar has since recovered from its lows overnight mostly on short-covering, traders said but analysts said sentiment has turned decidedly negative in the near to medium-term.
"Risk appetite is back up and high-yielders are back up as well after the Fed cut rates," said Antje Praefcke, currency strategist at Commerzbank in Frankfurt. "Overall, the clear sentiment is for a lower dollar in general."
Sterling was also under pressure, hitting a 17-month low against the euro for a third consecutive session, as traders interpreted the minutes of this month's Bank of England meeting as signalling possible interest rate cut in the future.
The dollar pushed its trade-weighted index (.DXY: Quote, Profile, Research) to 79.091, its lowest since 1992, but recovered to 79.312 by 1006 GMT, up 0.13 percent on the day.
The greenback held near its weakest level against the euro hit on Tuesday -- which rose to within a whisker of $1.40.
The dollar slipped to 115.84 yen <JPY=>. The euro dipped to 161.65 yen <EURJPY=R> after pushing up to a five-week high of 162.56 yen on Tuesday.
U.S. housing and inflation data could also provide a clearer picture on prospects for interest rates.
Analysts said there are barrier options at the $1.40 level, which has capped the euro's upside against the dollar. "I would expect traders to make a go for that $1.40 level if we get weak housing numbers out of the U.S. later," Praefcke said.
"I think (the Fed's) the move will help other central banks get back on to a hiking path as this boost for the U.S. economy should help the rest of the world maintain strong growth," said Laura Ambroseno, currency strategist at Morgan Stanley.
The euro fell 0.2 percent to $1.3954 <EUR=>, below a record high of $1.3989 the previous session.
U.S. housing and inflation data could also provide a clearer picture on prospects for U.S. interest rates. Hours after the Fed's announcement, the Bank of Japan held its overnight rate at 0.5 percent, a widely expected move that prompted limited market reaction. The BoJ said it will determine the impact of troubles in the United States before considering a rate rise.
The dollar slipped to 115.90 yen <JPY=>. The euro dipped to 161.85 yen <EURJPY=R> after pushing up to a five-week high of 162.56 yen on Tuesday.
The New Zealand dollar, whose steep interest rates make it a bellwether of risky carry trades, hit its highest level in more than a month against the dollar, extending gains after posting its biggest one-day rise in nine years following the Fed's move.
The New Zealand dollar climbed 0.9 percent to US$$0.7319 (NZD: Quote, Profile, Research). Sterling fell 0.5 percent against the dollar to $2.0015 <GBP=>, while the euro rose to a 17-month peak of 69.76 pence <EURGBP=>, in the wake of the BoE minutes.
Minutes of the Sept. 5-6 meeting published on Wednesday showed MPC members agreed that the upside risks to inflation had receded somewhat as a result of turmoil on financial markets and developments in the real economy.
Analysts said that risk aversion has dipped slightly on Wednesday, investors would likely stay cautious on worries about more bad news tied to the U.S. subprime mortgage crisis and resulting credit market troubles, highlighted by the problems of British mortgage lender Northern Rock (NRK.L: Quote, Profile, Research).
(Additional reporting by Simon Falush)