Dollar tumbles on Fed rate cut speculation

Dollar tumbles on Fed rate cut speculation
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First Published: Wed, Jan 16 2008. 11 39 AM IST
Updated: Wed, Jan 16 2008. 11 39 AM IST
Tokyo: The dollar hit a two-and-a-half-year low against the yen and a record low versus the Swiss franc on Wednesday, 16 January, hurt by fears of a US recession and speculation about an early Federal Reserve interest rate cut.
US data on Tuesday showing retail sales last year were at their lowest since 2002 further fuelled market rumours the US central bank was holding an emergency meeting to cut rates immediately.
But a Fed spokeswoman declined to comment on the rumours.
Views on the US economy were also dented after Citigroup Inc, the largest US bank by assets, reported its first quarterly loss since its establishment in 1998.
The greenback struck a fresh two-and-a-half-year trough and was trading around 106.23 yen on electronic trading platform EBS, down 0.4% on the day, the lowest since May 2005.
The euro was up 0.3% to $1.4845 but off a seven-week peak of $1.4923 hit the previous day and a record high of $1.4969 struck in November.
The dollar hit a record low against the Swiss franc below 1.0855 on EBS
Against the yen, the euro slid to 157.40 yen as investors shunned risky carry trades, in which a low-yielding currency such as the yen is used to finance purchases of assets offering higher yields elsewhere.
Fed Chairman Ben Bernanke’s comments last week that the central bank was willing to take “substantive additional action” to maintain growth cemented expectations for a half percentage point cut in the Fed’s benchmark interest rate, currently 4.25%, at its scheduled meeting on 29-30 January.
US interest rate futures markets were reflecting a 50-50 chance of the Fed lowering interest rates by three-quarters of a percentage point by the end of this month.
The US central bank usually cuts the fed funds rate by a quarter-point or a more aggressive half-point.
Market players will be watching more US data and bank earnings due this week that could further boost expectations for a hefty Fed rate cut.
JPMorgan Chase & Co plans to announce results later in the day and Merrill Lynch & Co Inc on Thursday.
“Worse-than-expected bank earnings could spark more dollar selling,” said Masaki Fukui, senior market economist at Mizuho Corporate Bank.
Data due this session includes the December consumer price index at 1330 GMT. The median forecast among economists is for a rise of 0.2% in the headline December CPI, or a year-on-year gain of 4.1%.
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First Published: Wed, Jan 16 2008. 11 39 AM IST
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