In The Days

• Source: Yahoo
• Author: Matt Moore
• News Date: 9/19/07

Dollar Falls to All-Time Low on Fed Rate Cuts

“And there shall be signs in the sun, and in the moon, and in the stars; and upon the earth distress of nations, with perplexity the sea and the waves roaring;”
—Luke 21:25

FRANKFURT, Germany (AP) — The dollar slumped to an all-time low against the euro Wednesday in the aftermath of a half-percent interest rate cut by the Federal Reserve, but clawed back some ground on data showing a decline in U.S. consumer prices.

The euro rose to $1.3987, a new high, before retreating to $1.3973 in afternoon European trading after the U.S. Labor Department reported that its Consumer Price Index dipped by 0.1 percent last month. That was the first decline since October 2006.

The euro was still above the $1.3971 it bought in New York late Tuesday after the Fed cut its benchmark interest rate a half-point to 4.75 percent, the first reduction in four years.

Most analysts had expected a quarter-point cut. Lower interest rates, used to jump-start the economy, can weaken a currency by giving investors less return on investments denominated in the currency.

The Fed acted to calm financial markets afraid of a recession because of the slumping housing market, the credit crisis and weak August jobs data.

The dollar also fell briefly to the British pound. The pound rose to $2.0173 before falling back to $1.9978, below the $2.0131 it bought in New York late Tuesday.

The rising euro has yet to cause great consternation among most of the 13 nations that use the common currency, but as it rises, it could dampen exports, particularly to the United States, making anything from automobiles to consumer appliances more expensive to American buyers.

German Economy Minister Michael Glos said in an interview with the Bild newspaper published Wednesday that “nobody knows how the U.S. financial crisis will affect Germany in the end.”

He also said that a weakened dollar, along with higher oil prices, has the potential to slow Germany’s growth, particularly in exports. Germany is the world’s biggest exporter, just ahead of China and the United States.

“If the dollar’s exchange rate further weakens, it will cast a shadow on our export chances,” Glos was quoted as saying.

The dollar strengthened against the Japanese currency, rising to 116.11 yen from 115.74 yen after the Bank of Japan kept its benchmark interest rate steady at half a percent and kept its assessment of the national economy unchanged.

The bank reiterated its optimistic outlook for the future, while expressing some caution about the U.S. economy.

“Japan’s economy is expected to expand moderately,” it said.

AP Business Writer Yuri Kageyama in Tokyo contributed to this report.