Euro climbs against dollar, yen after Fed rate cut
Sunday, 19 August 2007
NEW YORK, Aug 18(AFP): The euro climbed against the dollar and the yen yesterday after the US Federal Reserve cut its discount rate to ease liquidity in the banking system and widening fears of a credit crunch.
The euro climbed to 1.3472 dollars around 2100 GMT, up from 1.3425 dollars late Thursday.
The euro was at 154.05 yen, up from 152.85, and the dollar traded at 114.29 yen, up from 113.86.
The Federal Reserve yesterday slashed its discount rate-the interest rate charged on loans to commercial banks-by a half-per centage-point in a bid to increase liquidity in the banking market.
Traders on the currency market welcomed the move, after a week of turmoil on the financial markets around the world.
"Although the Fed took no action on its benchmark fed funds interest rate target, which remains at 5.25 per cent, this cut in the rate at which banks can borrow from the Fed is a sign that policymakers may be moving toward looser monetary policy," said Patrick Fearon, a currency analyst at AG Edwards.
"Therefore, even though the developing global credit crunch will undermine prospects for new interest-rate hikes by the major foreign central banks, US rates now look like they may become less competitive with rates abroad, and that is undermining the dollar," he said.
Analysts said the Fed discount rate cut suggests the central bank will move soon to lower its federal funds rate, which has been at 5.25 per cent since June 2006.
"The clear message today is: if the market turmoil continues, they (the Fed) will ease policy to counteract negative fallout on growth," said Patrick Franke at Commerzbank.
The euro climbed to 1.3472 dollars around 2100 GMT, up from 1.3425 dollars late Thursday.
The euro was at 154.05 yen, up from 152.85, and the dollar traded at 114.29 yen, up from 113.86.
The Federal Reserve yesterday slashed its discount rate-the interest rate charged on loans to commercial banks-by a half-per centage-point in a bid to increase liquidity in the banking market.
Traders on the currency market welcomed the move, after a week of turmoil on the financial markets around the world.
"Although the Fed took no action on its benchmark fed funds interest rate target, which remains at 5.25 per cent, this cut in the rate at which banks can borrow from the Fed is a sign that policymakers may be moving toward looser monetary policy," said Patrick Fearon, a currency analyst at AG Edwards.
"Therefore, even though the developing global credit crunch will undermine prospects for new interest-rate hikes by the major foreign central banks, US rates now look like they may become less competitive with rates abroad, and that is undermining the dollar," he said.
Analysts said the Fed discount rate cut suggests the central bank will move soon to lower its federal funds rate, which has been at 5.25 per cent since June 2006.
"The clear message today is: if the market turmoil continues, they (the Fed) will ease policy to counteract negative fallout on growth," said Patrick Franke at Commerzbank.