Tuesday March 11, 05:49 PM
Dollar hits new low against euro but draws support from Fed action
LONDON (AFP) - The single European currency in late-day trade was at 1.5346 dollars 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 was meanwhile at 102.72 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 arkets.
One initiative announced by the Fed was a new auction program for commercial banks and brokerages, who 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.
The move was coordinated with the ECB and SNB along with the Bank of Canada and Bank of England. Each of the central banks is "announcing specific measures" to deal with the liquidity crunch in the global system, according to a Fed statement.
Simon Derrick at Bank of New York said the Fed move acted as a "brisk tonic" for the sagging dollar.
"The euro, which just hours earlier had hit new all time highs of 1.5495 dollars, rapidly dropped over 100 points on the news," he added.
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.
"Foreign exchange markets are reacting to the lower probability of an aggressive move from (the) Fed next week," said Divyang Shah at Commonwealth Bank.
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 Europe on Tuesday, the euro changed hands at 1.5346 dollars against 1.5345 late on Monday, at 157.75 yen (156.11), 0.7643 pounds (0.7638) and 1.5788 Swiss francs (1.5638).
The dollar stood at 102.72 yen (101.73) and 1.0283 Swiss francs (1.0191).
The pound was at 2.0079 dollars (2.0084).
On the London Bullion Market, the price of gold rose to 970 dollars an ounce from 969.25 dollars late on Monday. Last Thursday, the precious metal hit a record 992.05 dollars.
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