The dollar held onto most of its gains at midday Thursday after the European Central Bank cut its benchmark rate to 2 percent and as financial-sector anxieties and more grim unemployment news sank stocks.
The British pound rose to $1.4592 from $1.4493 late Wednesday. But the euro dropped $1.3090 in midday trading in New York from $1.3177 in late trading Wednesday, earlier slipping to $1.3024, its lowest point since Dec. 11. The dollar also rose to 89.55 Japanese yen from 89.13.
"The dollar is stronger across the board," said Brian Dolan, chief currency strategist of Forex.com. "Things are on the cusp of getting a lot worse." As investors "relapse into despair," he sees a replay of the safe-haven status for the dollar that was the main driver of its gains this past fall as stocks tumbled.
The ECB cut its benchmark refinancing rate by half a percentage point to 2 percent, in line with expectations. Lower interest rates can weigh on currencies as investors seek higher returns elsewhere.
The ECB's rate is still among the highest of major economies, but ECB President Jean-Claude Trichet implied that more incremental easing to as low as 1 percent was likely throughout 2009, said Ashraf Laidi, chief market strategist at CMC Markets in London.
Trichet said that "risks to economic growth remain clearly on the downside."
Last month, the Federal Reserve slashed its rate to a range of zero to 0.25 percent. The Bank of England cut its rate last week by half a percentage point to 1.5 percent, and more cuts are expected in spring, while Japan dropped its rate to 0.1 percent last month.
In the U.S., shares of Citigroup Inc. and Bank of America Corp. sank as talk swirled about BofA possibly needing fresh government aid on top of $25 billion in earlier infusions. JPMorgan Chase & Co. on Thursday reported a profit of $702 million in the fourth quarter, down by more than three-fourths from last year, while Deutsche Bank on Wednesday said it lost 4.8 billion euros ($6.3 billion) in the fourth quarter. As earnings season kicks off, Wall Street is nervous about other banks posting big losses and needing more rescue funds.
In other news, the Labor Department reported that Americans filing new claims for unemployment benefits rose to 524,000 last week from 470,000 the previous week, more than had been expected. Economists say more job losses are likely for the rest of 2009.
In other New York trading, the dollar rose to 1.238 Swiss francs from 1.1197 late Wednesday, and jumped to 1.2608 Canadian dollars from 1.2267.