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Dolls Stumbles Against Euro After Fed Move

Reuters
Wednesday, 30 Jan 2008 | 3:06 PM ET

The dollar fell sharply against the euro on Wednesday after the Federal Reserve slashed benchmark interest rates by 50 basis points and said downside risks remain for growth.

The euro climbed as high as $1.4842 from about $1.4785, where it was shortly prior to the central bank's announcement. It last traded around $1.4819, up 0.3 percent.

The dollar held steady against the yen around 107.35, up 0.3 percent from Tuesday.

Strong data on private sector jobs, a low level of jobless claims, and robust durable goods orders seemed to indicate that the U.S. economic outlook was not all that gloomy.

Data on Wednesday showed that gross domestic product, a gauge of total U.S. goods and services output, edged up at a weaker-than-expected 0.6 percent annual rate in the fourth quarter and for the full year advanced only 2.2 percent. That was the slowest annual growth since 1.6 percent in 2002.

Analysts say the unravelling of the U.S. housing market and the subsequent malaise spreading throughout global financial markets have tilted the U.S. economy toward recession, which has prompted aggressive Fed action.

Investors were scrutinizing the statement accompanying the Fed's policy decision for clues about the extent of this year's monetary easing.

"The Fed has been savaged over the past week after policy makers appeared to bow to the equity market, with last Tuesday's move looking particularly clumsy following the Societe Generale revelation," said Stephen Malyon, currency strategist at Scotia Capital.

"With gold prices soaring and TIPS break-even rates jumping higher, a modest move might help restore some of the Fed's inflation-fighting credibility, or so the theory goes," he added.

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