The Dollar tumbled against major currencies except the Yen on Tuesday after the Federal Reserve unexpectedly slashed its benchmark overnight lending rate in an attempt to allay market fears of a US recession. The Fed's emergency move to cut rates by 75bp precipitated the world stock markets weakness. Tuesday's emergency step was the biggest Fed rate cut since 1984 and was the first inter-meeting cut since Sept. 17, 2001.

The US central bank's move wiped out the Dollar's yield advantage over the Euro, with the federal funds rate target now at 3.5% and official euro zone interest rates at 4%. The cut, which preceded next week's Federal Open Market Committee monetary policy meeting, was not enough to prevent US stocks from falling when the market reopened after Monday's public holiday.

Yesterday, EurUsd was up 1.54% at 1.4644 after briefly racing to 1.4685. The Euro has rebounded from a one-month low against the Dollar of 1.4311. UsdChf was down 1.16% at 1.0970, while the GbpUsd rose 1.03% to 1.9604. AudUsd traded up 1.7% at 0.8721 after hitting intraday 0.8512 low. NzdUsd jumped 3.39% to 0.7658 rebounding from 4-months low 0.7658. UsdJpy traded up 1.19% at 106.89, after earlier touching its 2 ½-month lowest 105.63.

Short-term interest rate futures were pricing in a 25bp rate cut at the Jan. 29-30 meeting and showed a roughly 80% chance of a 50bp cut. The Fed has been cutting rates since mid-September.