Tokyo: The dollar hovered near 13-year lows against the yen and 2 -month lows versus the euro on Wednesday after tumbling the previous day as the US Federal Reserve slashed interest rates to as low as zero.
In a historic move, the Fed on Tuesday cut its target for the federal funds rate to a range of zero to 0.25%, a record low, from 1.0% and said it was willing to keep rates low for an extended period.
The Fed said it would use “all available tools” to support the economy, and added that it was mulling possible purchases of longer-term US Treasury debt and would consider other ways to tap its burgeoning balance sheet to support the economy.
“Dollar selling pressure from the standpoint of interest rates seems likely to continue,” said Masafumi Yamamoto, head of foreign exchange strategy in Japan for the Royal Bank of Scotland.
The Fed’s move brought the policy target for the federal funds rate to below the Bank of Japan’s 0.30% target for the overnight call rate.
US medium- to long-term bond yields are likely to have more room to fall, Yamamoto said, adding that further declines in yield differentials with comparable Japanese bond yields could drag the dollar lower.
After tumbling broadly on Tuesday, the dollar regained some ground and came off troughs hit following the Fed’s action.
The dollar was little changed against the yen compared to late US trading on Tuesday at 88.90 yen, having pulled up slightly from a low near 88.60 yen hit on Tuesday.
The dollar was still not far from a 13-year low of 88.10 yen hit on trading platform EBS late last week.
The euro fell 0.2% to $1.4074, having retreated from a 2-month high of $1.4150 hit on EBS on Tuesday.
With the Fed’s policy meeting out of the way, some market players said the euro’s rise against the dollar may start to lose some steam.