The Dollar rebounded from record lows on Friday as a Federal Reserve liquidity injection fueled some speculation the central bank might hold off on cutting interest rates aggressively even after a sharp contraction in US payrolls. Profit-taking and short-covering also helped support the Dollar, traders said, after three days of successive sharp gains in the Euro, which brought the European currency to historic peaks.
The Fed announced a series of term repurchase operations totaling $100 billion to ease liquidity pressures in stressed financial markets, overshadowing a Labor Department report showing US employers cut payrolls for a second month in February.
Interest rate futures reflected reduced views of the chances of a 75bp cut in the Fed's benchmark overnight lending rate at the March 18 meeting, to 96% from 130% earlier. The fed funds rate target is currently at 3% after being lowered by 225bp since mid-September.
On Friday after the February payrolls report, the Euro initially surged to 1.5462 high. The 63k jobs decline was the biggest monthly drop in nearly five years, the Labor Department said. Economistsâ€™ pool had forecast 25k jobs would be added to payrolls last month.
EurUsd traded down 0.18% at 1.5356 as investors considered the US interest rate outlook. UsdChf slumped to historic troughs at 1.0134 low, before recovering to trade up 0.16% at 1.0223. UsdJpy dropped to its lowest in eight years at 101.42, before regaining ground to trade flat at 102.68.
The Fed said it would increase amounts in its Term Auction Facility auctions on March 10 and March 24 to $50 billion each, a rise of $20 billion from the amounts announced for each of these auctions. The measures might ease pressure on the Fed to cut interest rates steeply. Aggressive monetary easing has erased the Dollar's yield advantage against currencies like the Euro.
The European Central Bank has kept its refinancing rate at 4%, citing rising inflation pressures. ECB President Jean-Claude Trichet on Thursday dashed expectations of a rate cut any time soon, with the central bank upwardly revising its inflation forecasts.