The Dollar sank to a two-month low against a basket of currencies on Wednesday after the Federal Reserve cut benchmark interest rates by 0.50bp and warned more may be needed to support the faltering US economy. The move comes just eight days after the US central bank unexpectedly cut its lending rate by 0.75bp to boost an economy battered by a deep housing slump and a persistent credit crisis. The cumulative 1.25bp reduction in less than 10 days brings rates to 3%, a percentage point below euro-zone rates and among the lowest in the developed world.
The EurUsd surged to 1.4907, not far from its all-time high around 1.4967 before easing to 1.4828 +0.41%. GbpUsd higher by more than a cent and last traded down -0.27% at 1.9838. The UsdJpy fell 0.79% to 106.23 and UsdChf hit a record low of 1.0812, following US stocks lower after a CNBC reporter said he believed ratings agencies may downgrade bond insurers MBIA Inc. and Ambac Financial Group as early as today.
Traders said the market was watching to see whether the Euro could build on its momentum to rise above 1.5000, though some said it might take more tough talk from the European Central Bank on inflation before that happens. Unlike the Fed, the ECB has held interest rates at 4% throughout a credit crisis that began in mid-2007, and policymakers have continued to focus on inflation risks.