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Dollar, pound plunge against euro over rate cuts

Latest update : 2008-12-18

The euro rose by almost five cents against the dollar in New York late Tuesday after a US Federal Reserve announcement of a rate cut to 0.25%. Sterling slumped to another record low and got closer to parity with the euro.

AFP - The dollar slid to a 13-year low point against the yen on Wednesday after the Federal Reserve slashed interest rates to near zero while the pound plumbed new record depths against the euro.
  
The US currency dropped to 87.14 yen before rebounding slightly to 87.90 yen in late European trade, which was still down from 88.98 yen in New York late Tuesday.
  
The euro rose to 1.4319 dollars, up from 1.4018 dollars in New York late on Tuesday. It reached a high during the day of 1.4437 dollars.
  
Meanwhile, sterling slumped to another record low of 1.0753 euros, after new gloomy economic data sparked renewed speculation about more interest rate cuts from the Bank of England.
  
"After today’s UK employment figures and the release of the minutes from the last MPC (monetary policy committee) meeting, the euro smashed the pound to move within 7.8 percent of parity," said David Evans, market analyst at BetOnMarkets.com.
  
"If the momentum built up over the last couple of months is anything to go by, the pound could be less than 30 days away from being on level terms with the euro."
  
Piers Cracknell, commercial director at currency specialists Moneycorp in London added: "Sterling/euro is still the one to watch."
  
"With record lows nearly every day, one pound for one euro is clearly visible on the radar."
  
The US Federal Reserve lowered its target federal funds rate on Tuesday from 1.0 percent to a range of zero to 0.25 percent after a raft of bad data, including a historic plunge in housing starts.
  
"The dollar took another hit as the FOMC established a target range for the Fed Funds target rate of zero percent to 0.25 percent," said Calyon analyst Stuart Bennett.
  
"Against the yen, the dollar hit a thirteen-year low, with euro/dollar breaking through the 1.40 mark."
  
The cut lowered US borrowing costs below the 0.30 percent level in Japan, which for years has had the world's lowest interest rates.
  
Currency players were pessimistic over the dollar's outlook because lower interest rates have a negative impact on currency values.
  
The dollar "fell off a cliff early this morning after the Federal Reserve announced a more aggressive policy-easing than expected," wrote NAB Capital strategist John Kyriakopoulos in a note to clients.
  
The Federal Open Market Committee (FOMC) in a statement said on Tuesday that it expected to keep the federal funds rate "exceptionally low" for some time because of markedly declining inflationary pressures.
  
In Britain, official data showed on Wednesday that the number of people claiming jobless benefits in Britain leapt in November by the biggest monthly amount for more than 17 years, in the latest sign of a sharp economic slowdown.
  
It also emerged that Bank of England policymakers mulled an even steeper cut when they voted unanimously to slash interest rates by a full percentage point to 2.0 percent earlier this month.
  
In late trading in London on Wednesday, the euro changed hands at 1.4319 dollars against 1.4018 dollars late on Tuesday, at 125.02 yen (124.74), 0.9256 pounds (0.8990) and 1.5539 Swiss francs (1.5754).
  
The dollar stood at 87.90 yen (88.98) and 1.0858 Swiss francs (1.1236).
  
The pound was at 1.5462 dollars (1.5581).
  
On the London Bullion Market, the price of gold rose to 870 dollars an ounce from 838.25 dollars late on Tuesday.

Date created : 2008-12-17

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