Dollar rebounds after Fed rate cut

The incredible shrinking dollar

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NEW YORK (CNNMoney.com) -- The U.S. dollar moved higher against several major currencies Tuesday after the Federal Reserve cut interest rates by three quarters of a percentage point - a less aggressive move than some investors were hoping for.

The 15-nation euro traded at $1.5715, down from $1.5731 late Monday. But prior to the Fed's decision to cut interest rates, the euro was trading $1.5792.

The dollar also moved higher against the British pound but eased further against the yen.

The greenback has moved sharply lower in recent weeks against a number of foreign currencies on expectations that the Fed will keep cutting interest rates to keep the U.S. economy from entering a recession.

But Tuesday's decision to lower the federal funds rate by three quarters of a percentage point was a disappointment for some investors who were hoping the central bank would act more aggressively by cutting rates by a full percentage point.

A rate cut puts pressure on the dollar since it makes dollar-denominated investments less attractive to outside investors.

In its accompanying statement, the Fed acknowledged that inflation is a growing concern, but it left the door open to more rate cuts which would further pressure the greenback.

"I don't think this [cut] changes the outlook for significantly lower rates from here," said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc. "Any rebound we might get in the dollar is going to be pretty limited."

At its January meeting, the central bank lowered the federal funds rate by half a percentage point. That followed an emergency three-quarters of a percentage point cut just a week earlier.

Although a weak dollar also typically drives domestic and overseas demand for U.S. goods, it also poses an inflationary risk to the economy by pushing up the price of commodities such as oil and gold.