The greenback rallied broadly against major currencies after the Federal Reserve cut its target for the federal funds rate 75 basis points to 2.25% to boost the economy and confidence in financial markets. U.S. stocks rang up their biggest one-day gains in more than five years. The Dow Jones industrial average climbed 420 points or 3.51% to end at 12393. The Standard & Poor’s 500 Index rose 54.14 points or 4.24% to 1330.74. The Nasdaq Composite Index jumped 91.25 points or 4.19% to 2268.26.

The Federal Open Market Committee statement showed recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and economic growth over the next few quarters. However, the Committee expects inflation to moderate in coming quarters, reflecting a projected levelling out of energy and other commodity prices and an easing of pressures on resource utilization. Vote in favor of rate cut was 8-2 whilst voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at the FOMC monetary policy meeting.

The U.S. currency rallied against the Japanese yen from 98.86 to 100.00 on Tuesday due to renewed cross selling in jpy as stocks rallied on stronger-than-forecast earnings from Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc.

European Central Bank Executive Board member Lorenzo Bini Smaghi said financial markets do not always act in an optimal fashion and tend to react too strongly relative to economic fundamentals. The single currency tumbled versus the dollar from 1.5833 to 1.5617 as the rate reduction by Fed was smaller than the full-point cut many traders anticipated. The greenback rose against the Swiss franc from 0.9785 to 1.0035. The British pound rose initially from 1.9953 to 2.0275 and then fell sharply to around 2.0042 after Fed’s aggressive rate cut.

Wednesday will see the release of Japan’s all industry index, U.K. claimant count, average earning and ILO unemployment, eurozone trade balance, U.K. CBI industrial trend.