Wednesday December 17, 10:34 PM
Dollar in record plunge against euro after Fed rate cut
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NEW YORK (AFP) - The dollar took a record dive against the euro and fell against other major currencies Wednesday, a day after the Federal Reserve slashed interest rates to virtually zero.
The euro also leapt to near-parity with the pound and gained against the yen.
At 2200 GMT, the euro was trading at 1.4404 dollars, up sharply from 1.4018 late Tuesday. Earlier, the single European currency had surged to 1.4437 dollars, it highest level since September 29.
It was the euro's strongest gain against the greenback since the currency was launched in January 1999.
The euro also climbed to 126.02 yen from 124.74 late Tuesday.
The dollar skidded lower against the Japanese currency, trading at 87.95 yen compared with 88.98 Tuesday. The yen earlier hit a 13-year high against the dollar, at 87.11 yen.
The US currency was under pressure after the Federal Reserve on Tuesday cut its already historic low 1.0 percent lending rate to an unprecedented range of zero to 0.25 percent, and said it would keep it "exceptionally low" for "some time."
The Fed also promised to use all its firepower to unblock frozen credit and stimulate growth in an all-out battle against a year-long recession.
"The move yesterday in the currency markets was the rush to cover risk of a potential massive infusion of money into the US financial system," said Andrew Busch, analyst at BMO Capital Markets.
"However, there may also be a rush out of the US dollar due to a disbelief that the US central bank can manage the risks" of their quantitative easing program, a strategy that effectively prints money, he said.
"After all the last time the Fed embarked on a serious monetary stimulus program, it created a massive bubble in the US housing market. Let's face it, the Fed doesn't deserve much credibility when it comes to turning off the monetary spigot."
The euro found support after European Central Bank officials signaled that the key interest rate would be held unchanged at 2.50 percent at a January meeting after series of rate cuts in recent months.
The pound, meanwhile, continued its descent to parity with the euro and hit a new record low at 1.0715 euros.
Official British monthly data showed that the number of people claiming jobless benefits in Britain leapt in November by the biggest amount in more than 17 years, in the latest sign of a sharp economic slowdown.
The minutes of the last Bank of England meeting showed that policymakers had discussed a bigger rate cut than the 1.0 percentage point unanimously decided earlier this month.
"After today's UK employment figures and the release of the minutes from the last MPC (monetary policy committee) meeting, the euro smashed the pound to move within 7.8 percent of parity," said David Evans, market analyst at BetOnMarkets.com.
"If the momentum built up over the last couple of months is anything to go by, the pound could be less than 30 days away from being on level terms with the euro."
Piers Cracknell, commercial director at currency specialists Moneycorp in London added: "Sterling/euro is still the one to watch."
"With record lows nearly every day, one pound for one euro is clearly visible on the radar."
In late New York trading, the dollar slid to 1.0720 Swiss francs from 1.1236 late Tuesday.
The pound weakened to 1.5516 dollars from 1.5581.
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