Dollar claws back as markets digest Fed rate cut
Thursday, 20 September 2007
TOKYO, Sept 19 (AFP): The dollar bounced off a record low against the euro in Asian trade today, recovering some of its heavy losses seen in the wake of the Federal Reserve's hefty interest rate cut, dealers said.
The euro was at 1.3976 dollars in Tokyo afternoon trade, easing off an all-time high of 1.3988 seen late Tuesday in New York.
The dollar inched down to 115.91 yen from 116.05 while the euro dipped to 162.02 yen from 162.26.
The US central bank slashed its benchmark interest rate Tuesday for the first time since June 2003, lopping off 50 basis points to 4.75 per cent to ease distress in credit markets and cushion the economy from the housing slump.
"The Fed showed clearly its responsibility towards the subprime mortgage problems that have spread across the world," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo.
Although a rate cut could make the dollar less attractive to buyers because of lower returns on US assets, "the fact that on the contrary it is being bought signifies investor risk appetite is returning," he added.
The dollar initially fell against most currencies in response to the US rate cut, but managed to recover some ground against the euro in Asian trade as stocks rallied.
The move was unlikely to provide lasting relief for the dollar, argued Barclays Capital currency analysts.
"The move is clearly negative for the dollar. Investors are likely to interpret the size of the move as reflecting serious concerns on the part of the Fed about the outlook for the economy," they wrote in a note to clients.
Dealers said the bold half-point cut had encouraged renewed carry trades by investors selling low-return currencies such as the yen to buy high-yield currencies like the Australian and New Zealand dollars.
Against other Asian units, the dollar fell to 1.5076 Singapore dollars from 1.5168 a day earlier, to a one-month low of 926.65 South Korean won from 930.45 and to 9,259 Indonesian rupiah from 9,392.
It declined to 45.58 Philippine pesos from 46.50, to 31.86 Thai baht from 32.05 and to 33.11 Taiwan dollars from 33.12.
The euro was at 1.3976 dollars in Tokyo afternoon trade, easing off an all-time high of 1.3988 seen late Tuesday in New York.
The dollar inched down to 115.91 yen from 116.05 while the euro dipped to 162.02 yen from 162.26.
The US central bank slashed its benchmark interest rate Tuesday for the first time since June 2003, lopping off 50 basis points to 4.75 per cent to ease distress in credit markets and cushion the economy from the housing slump.
"The Fed showed clearly its responsibility towards the subprime mortgage problems that have spread across the world," said Ryohei Muramatsu, manager of Group Treasury Asia at Commerzbank in Tokyo.
Although a rate cut could make the dollar less attractive to buyers because of lower returns on US assets, "the fact that on the contrary it is being bought signifies investor risk appetite is returning," he added.
The dollar initially fell against most currencies in response to the US rate cut, but managed to recover some ground against the euro in Asian trade as stocks rallied.
The move was unlikely to provide lasting relief for the dollar, argued Barclays Capital currency analysts.
"The move is clearly negative for the dollar. Investors are likely to interpret the size of the move as reflecting serious concerns on the part of the Fed about the outlook for the economy," they wrote in a note to clients.
Dealers said the bold half-point cut had encouraged renewed carry trades by investors selling low-return currencies such as the yen to buy high-yield currencies like the Australian and New Zealand dollars.
Against other Asian units, the dollar fell to 1.5076 Singapore dollars from 1.5168 a day earlier, to a one-month low of 926.65 South Korean won from 930.45 and to 9,259 Indonesian rupiah from 9,392.
It declined to 45.58 Philippine pesos from 46.50, to 31.86 Thai baht from 32.05 and to 33.11 Taiwan dollars from 33.12.