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Dollar Falls to 13-Year Low vs. Yen on Fed Rate Cut

Wednesday, 17 Dec 2008 10:11 AM

LONDON -- The dollar slid to a 13-year low point against the yen on Wednesday after the Federal Reserve slashed interest rates to near zero as it struggled to curb an accelerating economic downturn, dealers said.

Meanwhile, sterling slumped to another record low point against the euro of 1.090 euros, after new gloomy economic data sparked renewed speculation about more interest rate cuts from the Bank of England.

The US currency dropped to 88.18 yen in Asian trade before rebounding slightly to 88.39 yen in morning European trade, which was still down from 88.98 yen in New York late Tuesday.

The euro rose to 1.4095 dollars, up from 1.4018 dollars late in New York on Tuesday.

The US Federal Reserve lowered its target federal funds rate on Tuesday from 1.0 percent to a range of zero to 0.25 percent after a raft of bad data, including a historic plunge in housing starts.

"The dollar took another hit as the FOMC established a target range for the Fed Funds target rate of zero percent to 0.25 percent," said Calyon analyst Stuart Bennett.

"Against the yen, the dollar hit a thirteen-year low, with euro/dollar braking through the 1.40 mark."

The cut lowered US borrowing costs below the 0.30 percent in Japan, which for years has had the world's lowest interest rates.

Currency players were pessimistic over the dollar's outlook because lower interest rates have a negative impact on currency values.

The dollar "fell off a cliff early this morning after the Federal Reserve announced a more aggressive policy easing than expected," wrote NAB Capital strategist John Kyriakopoulos in a note to clients.

The Federal Open Market Committee (FOMC) in a statement said on Tuesday that it expected to keep the federal funds rate "exceptionally low" for some time because of markedly declining inflationary pressures.

The pound dropped to 1.090 euros on Wednesday -- hitting the lowest level since the creation of the European single currency in 1999.

Analysts predicted that sterling was on course to reach parity against the euro amid spreading concern that Britain was very close to recession.

"Sterling/euro is still the one to watch," said Piers Cracknell, commercial director at currency specialists Moneycorp in London.

"With record lows nearly every day, one pound for one euro is clearly visible on the radar.

Official data showed on Wednesday that the number of people claiming jobless benefits in Britain leapt in November by the biggest monthly amount for more than 17 years, in the latest sign of a sharp economic slowdown.

It also emerged that Bank of England policymakers mulled an even steeper cut when they voted unanimously to slash interest rates by a full percentage point to 2.0 percent earlier this month.

In trading in London on Wednesday, the euro changed hands at 1.4095 dollars against 1.4018 dollars late on Tuesday, at 124.61 yen (124.74), 0.9092 pounds (0.8990) and 1.5728 Swiss francs (1.5754).

The dollar stood at 88.39 yen (88.98) and 1.1157 Swiss francs (1.1236).

The pound was at 1.5504 dollars (1.5581).

On the London Bullion Market, the price of gold rose to 855.15 dollars an ounce from 838.25 dollars late on Tuesday.

© Agence France-Presse, a global news agency

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LONDON -- The dollar slid to a 13-year low point against the yen on Wednesday after the Federal Reserve slashed interest rates to near zero as it struggled to curb an accelerating economic downturn, dealers said.Meanwhile, sterling slumped to another record low point...
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2008-11-17
 

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