Dollar Posts Biggest Gain vs Yen in Nine Years


The dollar posted its largest single-day gain against the yen in nine years on Tuesday and rallied against the euro after the Federal Reserve cut the benchmark U.S. interest rate by a less-than-expected 75 basis points to 2.25 percent.

Some investors had been betting the U.S. central bank could cut by as much as 100 basis points. Lower rates typically reduce the attractiveness of dollar-denominated securities and stem demand for the dollars to buy them.

Analysts said while the cut was smaller than expected, there were likely more to come.

The dollar was up 2.43 percent on the day versus the low-yielding yen but, at 99.55 yen, stayed under the 100 mark breached last week. It was the largest one-day percentage advance since Feb 16, 1999, according to Reuters data.

The dollar also managed to break back above parity against the Swiss francs at 1.0013 Swiss francs.

The euro was down 0.6 percent at $1.5635, it was the largest one-day percentage loss for the euro in six weeks. Monday's record peak for the euro/dollar was $1.5904.

The Fed's action takes the bellwether federal funds rate down to 2.25 percent, the lowest since February 2005, and comes two days after the central bank announced the latest in a series of emergency measures to stem a fast-spreading global financial crisis. The Fed has now cut rates a full 3 percent since September.

The Fed said in the statement accompanying the rate cut decision that "recent information indicates that the outlook for economic activity has weakened further" while "inflation has been elevated, and some indicators of inflation expectations have risen."


TradingEconomics.com, Bloomberg
3/18/2008 5:50:43 PM