Tuesday March 11, 10:00 PM
Dollar comes off lows on Fed action
NEW YORK (AFP) - The dollar hit an all-time low against the euro Tuesday but later drew support from joint action by the US Federal Reserve and other central banks to restore credit flows in the global financial system.
The single European currency was at 1.5333 dollars around 2100 GMT against 1.5345 late Monday, with the dollar having gotten a boost from the Fed move.
At one point, the euro, powered by a better than expected reading on German economic prospects, jumped to a record 1.5495 dollars.
The dollar also gained to 103.42 yen, up from 101.73 on Monday.
The Fed, in a fresh effort to ease a worldwide credit squeeze, acted in concert with the central banks of Britain, Switzerland, Canada and the eurozone to pump hundreds of billions of dollars of liquidity into financial markets.
One initiative announced by the Fed was a new auction program for commercial banks and brokerages, which will be able to swap thinly traded mortgage securities and other collateral for safer Treasury obligations.
It (Frankfurt: A0MLX5 - news) was the latest in a series of steps to help get credit flowing in the global financial system, which has been gridlocked by concerns about market turmoil linked to a collapse in US real estate securities.
The Fed said it was offering 200 billion dollars under an auction arrangement with a term of 28 days instead of overnight under an existing program.
The Fed also said it has authorized increases in its existing temporary reciprocal currency arrangements or swap lines with the European Central Bank and the Swiss National Bank. The Fed will provide up to 30 billion dollars to the ECB and six billion to the SNB, representing an increase of 10 and two billion dollars, respectively.
Simon Derrick at Bank of New York said the Fed move acted as a "brisk tonic" for the sagging dollar.
The news also led to speculation that the Fed is more likely to opt for a half-point interest rate cut next week rather than a more aggressive three-quarter-point reduction.
"Expect the dollar to continue to benefit from this announcement, but the rebound may not last long because this action allows Bernanke to replace a 75 basis points rate cut with a 50 basis points cut," said Kathy Lien, an analyst at Forex Capital Markets.
Derrick at Bank of New York said that by acting now it appeared that the Fed might have allowed itself a little more leeway in the run-up to March 18 when its next rate verdict is due.
The central bank news overshadowed data which showed the US trade deficit widened in January but not as much as expected, at 58.2 billion dollars, up 0.6 percent from December.
In late New York trade, the dollar was at 1.0334 Swiss francs, up from 1.0191 late Monday.
The pound was at 2.0067 dollars, down from 2.0084.
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