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Dollar Rises Against Euro After Modest Fed Cut

Reuters
Tuesday, 11 Dec 2007 | 2:48 PM ET

The dollar rose slightly against the euro but fell against the yen on Tuesday after the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, less than what some had expected.

Just before the Fed announcement, interest rate futures markets had reflected a chance of as high as 40 percent that the central bank would cut the fed funds rate by a half percentage point.

However, the Fed's decision to cut both its benchmark and discount rates by a quarter point ultimately provides a window of opportunity for the dollar to rise higher as dealers cut their bets against the greenback.

"For now, this is a relatively good decision for the dollar, as risk reduction is forcing an unwind of short dollar positions and should boost the dollar over the next four weeks or so," said Ashraf Laidi, chief market analyst with CMC Markets in New York.

"However, the Fed's statement does suggest they could cut rates again, at which point things could change for the dollar."

The euro slipped 0.3 percent on the day to $1.4670.

The dollar fell to session lows against the yen , at 110.85 yen, down 0.7 percent on the day as U.S. stock indexes tumbled.

Sterling fell 0.5 percent to $2.0357 .

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