Dollar Drops Most Since 1998

The dollar fell the most since 1998 against the currencies of six major U.S. trading partners as the Federal Reserve cut the target lending rate to a level matching a half-century low, saying risks to the economy remain.

The euro had the biggest two-day advance versus the dollar in a month after Chancellor Angela Merkel said Germany will announce ``bold'' measures to bolster the economy. The dollar fell against the Australian dollar and the South African rand on reduced demand for the greenback as a haven.

The dollar declined 2.1 percent to $1.2942 per euro at 4:07 p.m. in New York, from $1.2683 yesterday, when it fell 1.5 percent. The yen rose 0.6 percent to 97.40 per dollar from 98.03 yesterday, when it fell 5.4 percent, its biggest decline in more than three decades. The yen fell 1.4 percent to 126.03 versus the euro after dropping 6.8 percent yesterday, the most since the 15-nation currency's 1999 debut.

The ICE's Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and the Swedish krona, fell 2.3 percent, the biggest decline since October 1998. It touched the highest level since April 2006 yesterday.

Policy makers reduced the fed funds target by a half- percentage point to 1 percent, matching a level reached in June 2003 and before that during the Eisenhower administration in the late 1950s. The Fed today also announced $120 billion in swap lines with Brazil, South Korea, Singapore and Mexico.

The Canadian dollar gained the most in at least 37 years as its U.S. counterpart weakened and commodities including oil, natural gas, copper and gold increased. The loonie appreciated as much as 5 percent to C$1.2126 per U.S. dollar.

The pound rose 3 percent to $1.6361, bringing its gain in the past two days to 5.3 percent. The FTSE 100 Index rose 8.1 percent, and the central bank said lenders increased mortgage approvals last month for the first time since June 2007.

The Australian dollar gained 4.9 percent to 67.25 U.S. cents, while the rand increased 4.7 percent to 9.8250 against the greenback.

The yen has jumped 32 percent versus the euro and 15 percent against the dollar this year on speculation a deepening global slump will encourage the unwinding of carry trades.,
10/29/2008 1:49:33 PM