The dollar rose from a 15-year low against a basket of currencies on Wednesday as investors bet the Federal Reserve's interest rate cut on Tuesday will help boost a slowing U.S. economy.

The U.S. central bank slashed the fed funds rate to 4.75 percent from 5.25 percent on Tuesday to help relieve strains in credit markets. While that has diminished the allure of dollar-denominated assets, initially sparking broad selling in the greenback, the move has improved near-term prospects for the U.S. economy.

A report showing the U.S. core consumer price index was in line with expectations in August had little impact, coming the day after the Fed's decision. Similarly, a report showing U.S. home construction starts at their lowest in 12 years in August was largely ignored.

I think some people had lingering doubts with oil prices above $80 that prices could be a problem down the road, but these reports don't suggest that, said Michael Woolfolk, senior currency strategist at Bank of New York Mellon. They show the Fed has room to cut interest rates.

The euro fell 0.1 percent to trade at 1.3972 while the dollar slid 0.1 percent against the yen to change hands at 115.97.

The dollar index was up 0.1 percent at 79.27 after going as low as 79.091 earlier in the global session, according to Reuters data.

Traders, however, said the dollar is expected to weaken in the long term, once investors again look at rate differentials.

Analysts said investors were less risk-averse on Wednesday, but would likely stay cautious on worries about more bad news tied to the U.S. subprime mortgage crisis and resulting credit market troubles, highlighted by the problems of British mortgage lender Northern Rock (NRK.L: Quote, Profile, Research).

Risk appetite is back up and high-yielders are back up as well, said Antje Praefcke, currency strategist at Commerzbank in Frankfurt.

Meanwhile, hours after the Fed's announcement, the Bank of Japan held its overnight rate at 0.5 percent, a widely expected move that prompted limited market reaction. The BoJ said it will determine the impact of troubles in the United States before considering a rate rise.

The euro fell 0.2 percent to 162.06 yen after pushing up to a five-week high of 162.56 yen on Tuesday.


Sterling was also under pressure, hitting a 17-month low against the euro for a third consecutive session, as traders interpreted the minutes of this month's Bank of England meeting as signalling possible interest rate cuts in the future.

The British pound fell 0.6 percent against the dollar to $1.9995. The euro rose to a 17-month peak of 69.94 pence in the wake of the BoE minutes, last changing hands at 69.86 pence.

Minutes of the September 5-6 meeting published on Wednesday showed Bank of England MPC members agreed that the upside risks to inflation had receded somewhat as a result of turmoil on financial markets and developments in the real economy.

The New Zealand dollar, whose steep interest rates make it a bellwether of risky carry trades, hit its highest level in more than a month against the dollar, extending gains after posting its biggest one-day rise in nine years following the Fed's move.

The New Zealand dollar climbed 0.9 percent to US$0.7318.

Dollar/Swiss franc bounced off key support at 1.1800 twice in the global trading session with bids going as low as 1.1796, according to Reuters data. The pair last changed hands little changed at 1.1818.

Elsewhere the dollar fell almost to parity against the Canadian dollar at C$1.0084 before recovering to trade at C$1.0157, according to Reuters data.

(Additional reporting by Steven C. Johnson in New York and Gertrude Chavez-Dreyfuss in London)