04/18 13:30 Dollar Falls vs Euro as Surprise Fed Cut Signals
Growth Concern
By Mark Tannenbaum and Geraldine Ryerson-Cruz
New York, April 18 (Bloomberg) -- The dollar fell against the euro after the
Federal Reserve unexpectedly lowered interest rates, raising concern the U.S.
economy is weaker than previously thought.
``The risks to the U.S. growth picture continue to be quite large,'' said Jim
McCormick, a foreign-exchange strategist at J.P. Morgan Chase & Co. The drop
in rates also hurts the dollar by lowering returns on U.S. deposits relative to other
currencies, he said.
The Fed lowered its benchmark lending rate to 4.5 percent, from 5 percent, for a
total of 2 percentage points in cuts since the start of the year. Among Group of
Seven economies, only Japan, where the central bank has driven they overnight
rate to near zero, has lower benchmark rates.
The dollar initially strengthened on the rate cut, following gains in U.S. stocks. It
reached as strong as 86.99 cents per euro, the highest since Nov. 30, and up
from 88.36 in New York yesterday. It then retreated, falling to 88.64 cents.
Traders said some investors, concerned the move signals the U.S. economy is
weaker than previously thought, bought back euros.
The three major U.S. stock indexes rallied and held their gains. Leading the
charge, the Nasdaq Composite Index gained as much as 9.56 percent.
``Everybody was pretty stunned over here'' by the Fed announcement, said Brian
Taylor, head currency trader at Manufacturer's & Traders Trust Co. in Buffalo.
Taylor said he bought euros, canceling an earlier bet against the currency, when
the euro sank to its lowest level of the day, around 87 cents. Still, he remains
concerned the European Central Bank isn't doing enough to foster growth.
Dim View
That dim view on the ECB, which has kept its benchmark rate at 4.75 percent
even as other major central banks lowered borrowing costs, helped drive the euro
to a four-month low against the dollar in earlier trading today.
In its statement, the Fed said the economy remains skewed toward weakness
``for the foreseeable future, and cited declining capital investment among other
signs growth is flagging.
Foreign-exchange investors ``got a little bit too comfortable with the U.S.
environment,'' said Bob Sinche, chief currency strategist at Citibank.
The dollar fell to 122.46 yen, from 123.36 yesterday. |
