Rate cut gives dollar a ride

Dollar recovers some after sinking sharply, as Federal Reserve and a host of banks around the globe cut rates.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By David Goldman, CNNMoney.com staff writer

What will it take to get global markets back on track?
  • A bigger, coordinated rate cut by central banks
  • Regulatory changes
  • Another stimulus package
  • Time
dollar.mkw.gif
Click chart to check latest currency rates
yen.mkw.gif
Click chart to check latest currency rates

NEW YORK (CNNMoney.com) -- The dollar was mixed against global currencies Wednesday, after nations around the globe issued emergency interest rate cuts.

In a move to boost economic growth in the midst of a worsening global financial crisis, the Federal Reserve lowered its fed funds rate by half a percentage point to 1.5%.

The Fed's move was part of a coordinated effort to lower rates by the central banks of the United States, Canada, England, the European Union, Sweden and Switzerland. The enactment was announced at 7 a.m. ET.

Investors at first cheered the move. They took out the funds they have been using for months to trade dollars and put them in stocks. Foreign stock indexes recovered, oil prices rose and U.S. stock futures soared.

But about an hour after the news, investors' mood changed and stocks and oil both fell sharply. Investors put their funds back into the perceived safety of the dollar.

"The outlook is bad," said Tom Benfer, foreign exchange vice president at the Bank of Montreal. "There is a fair amount of doubt in the marketplace that this is going to work."

Risk aversion hurts European currencies

At 4 p.m. ET, the euro bought $1.3664, up from Tuesday's close of $1.3589. The 15-nation euro was as much as 1.1% higher after the announcement, before selling off.

The British pound traded at $1.7276, down 1% from Tuesday's $1.7456. It was the lowest level for the U.K. currency since March 10, 2006. It had traded up as much as 1.2% after the banks' joint rate cut.

With an ever-worsening economic situation in Europe, investors have been selling off pounds and euros and buying up U.S. dollars. Just two days ago, the euro traded at a 14-month low.

"The dollar has been trading up since July, broadly on increasing risk aversion," said Dustin Reid, senior currency strategist at ABN AMRO. "The dollar has seen a lot of safe haven flows recently."

Traders tend to think that the U.S. economy will bounce back before those in Europe because of the U.S. government's recovery efforts.

"We got the ball rolling earlier than the other countries," said Benfer. "Even now there's disagreement in Europe about how to proceed."

Yen boosted by fear factor

On the other hand, the dollar continued its enormous plunge against the Japanese yen. The dollar fell against the yen to ¥99.83, from ¥101.47 the day before. Monday, the dollar suffered a historic collapse, falling by as much as 4.8% - the biggest one-day drop ever. The dollar fell another 0.6% Tuesday.

The yen typically increases when investors show aversion to risk.

"When you make capital and money cheaper, it's a good step theoretically," said Benfer of the rate cuts. "But we all know if the credit markets still won't lend money out, we'll be stuck in the same situation for a long time."

Benfer said that if the dollar maintains a level below ¥100, the stock markets could remain mired in their recent funk. Indeed, stocks traded much lower Wednesday. To top of page

Track 17 major currencies

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.