Alexa

Hints of further rate cuts drive U.S. dollar to new low

Hints of further rate cuts drive U.S. dollar to new low

The U.S. dollar sank Wednesday to its lowest level ever against the euro after markets took comments from the U.S. Federal Reserve chairman as a sign that yet more U.S. rate cuts are on the way.
The 15-nation euro topped US$1.50 for the first time since its 1999 introduction in Asian trading, then surged after Fed Chairman Ben Bernanke told the House Financial Services Committee that "the economic situation has become distinctly less favorable" since last summer.
That added to sentiment that the Fed is likely to add to recent rate cuts that already have left U.S. interest rates below those in the euro zone.
The euro surged as high as US$1.5143 after Bernanke's testimony - well above the US$1.4967 it bought in New York late Tuesday. It settled back to US$1.5120 in late New York trading Wednesday.
Lower interest rates can jump-start a nation's economy, but can weigh on its currency as traders transfer funds to countries where they can earn higher returns. Worries about the U.S. economy have helped drive down the U.S. dollar for months.
Since Bernanke's last similar assessment, the U.S. housing slump has worsened, credit problems have intensified and the job market has deteriorated. Bernanke said those factors combined to make people and businesses alike more cautious toward spending and investment - further weakening the economy.
Despite the roaring euro, growth is still on track in Europe and markets are optimistic that, should the U.S. go into recession, the continent would be able to weather the storm.
The European Central Bank has left interest rates unchanged since last summer, is expected to keep them at 4 percent when it meets next week.
"The U.S. economy is still in a weak period and we cannot estimate how long that is going to go on," Christoph Schmidt, an analyst with N.M. Fleischhacker Trading Bank in Frankfurt, told Associated Press Television News.
"The market is counting on the Fed lowering the interest rates even further and on the fact that the ECB is going to keep them where they are," Schmidt said. He added that the divergent interest rates were "good for the euro and bad for the dollar."
The British pound soared as high as US$1.9971 before falling back to US$1.9842 late in New York - below its level of US$1.9862 late Tuesday. The U.S. dollar fell to 106.45 Japanese yen from 107.26 yen.


Updated : 2020-12-02 12:06 GMT+08:00