Dollar rallies after Euro rate cuts
Central bankers in Europe slash rates but grim economic outlook weighs on the currency market.
NEW YORK (CNNMoney.com) -- The dollar rose against the euro and the pound Thursday after monetary policy makers in Europe cut interest rates in response to growing economic weakness.
In a widely expected move, the European Central Bank lowered its benchmark rate by 50 basis points to 3.25%. But the Bank of England surprised investors by slashing its key rate a full 1.5 percentage points to 3%.
The British pound slid 2 cents after the Bank of England announced the larger-than-expected rate cut. It recovered immediately, jumping 3 cents, but fell late in the day to $1.5753, down 1.3% from late Wednesday.
The euro slid after the ECB rate cut. It then briefly traded higher before resuming its decline to trade at $1.2735, down 2% from the previous day.
Central bankers in Switzerland also cut rates. The Swiss National Bank lowered its key interest rate by half a percentage point to 2%, citing a worse-than-expected growth outlook.
The dollar traded at 1.1762 Swiss francs, up from 1.1627 Swiss francs.
"The aggressive rate cuts out of Europe today are encouraging, but may have come too late to avert a prolonged global economic deceleration," said Steve Malyon, currency strategist at Scotia Capital in Toronto.
Despite the rate cuts and improving credit conditions, global stock prices fell as negative economic reports and weak corporate results exacerbated recession fears.
U.S. stocks fell for a second day in a row. The Dow Jones industrial average was down 4.75% at midday.
Asian markets closed between 6% and 9% lower. In Europe, major indexes were down about 6%.
Currency traders look to the stock market for cues on the global economic outlook. When stocks fall, low-yielding currencies such as the dollar and the yen often rise as investors shy away from higher yielding assets that are more risky.
Against the Japanese yen, the euro bought ¥124.33, down from ¥127.13. The dollar traded at ¥97.82, down from ¥98.19. 
