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Dollar Gains on Euro, Yen After Fed Rate Cut

The dollar reversed earlier losses against the euro and gained against the single euro zone currency on Tuesday as investors traded on the less-than-expected 75 basis point cut to the benchmark U.S. lending rate.

Dollars and Euro
Dollars and Euro

Against the yen , the dollar last traded at about 99.39 yen from about 98.65 yen shortly prior to the announcement.

The euro traded at $1.5724 after the decision, from about $1.5795 shortly prior.

Expectations of rate cuts deepened after JPMorgan Chase's deal to purchase stricken rival Bear Stearns for a rock-bottom $2 a share and the Fed's emergency step of cutting its discount rate by 25 basis points on Sunday.

The greenback, which sold off on Monday, remained under pressure on Tuesday, although it advanced against the yen as stronger-than-expected results from Goldman Sachs and Lehman Brothers eased some investors' concerns about the health of the U.S. financial sector.

Demand for the Japanese yen tends to increase as investors' aversion to risk grows.

As U.S. stocks rallied, with investors willing to take on more risk, the dollar recouped some of its Monday's sharp losses versus the low-yielding yen.

But given the bank released better-than-expected results, in combination with another solid report by Goldman, the dollar bounced back against the yen," Mark Meadows, a market strategist at Tempus Consulting in Washington, said.

"But the rate decision later today is still weighing on the greenback against most other currencies."

Meadows said he expects the central bank to cut the benchmark rate by 75 basis points.

Intervention Eyed

The global credit squeeze continued to be reflected in short-term money markets, with overnight U.S. dollar deposit rates rising as high as 3.85 percent on Tuesday, having moved above 4 percent on Monday .

The dollar's sharp sell-off on Monday led traders to fret about the possibility of joint dollar-buying intervention by U.S., Japanese and European authorities.

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