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Dollar recovers as stocks fall Peter Garnham The dollar pulled back from a record low against the Swiss franc and a two-week trough against the euro on Thursday as worries over the health of the financial system hit market sentiment. The dollar fell and equities rallied after the Federal Reserve followed last week’s emergency 75 basis-point cut in its Fed funds rate with another 50 basis-point move on Wednesday, taking rates down to 3 per cent. The dollar dropped to a low of Sfr1.0798 against the Swiss franc and $1.4914 against the euro, less than a cent away from the record trough of $1.4968 it hit against the single currency last November.
However, the dollar rallied as talk of widespread failure among US bond insurers heightened fears over banks which use them to protect their assets and sent equities lower. Analysts said the resulting drop in risk appetite boosted low-yielding currencies, which have been widely used by carry trade investors to fund the purchase of riskier, higher-yielding assets. “In a little more than one week, the US central bank has lowered interest rates by 125 basis points, turning the dollar into a de-facto carry trade funding currency,” said Chris Huddleston at Close Brothers. The dollar pulled back to stand up 0.1 per cent at $1.4860 against the euro and down 0.2 per cent at SFr1.0813 against the Swiss franc. The dollar also rose 0.1 per cent to Y106.50 against the yen and was flat at $1.9916 against the pound. Meanwhile analysts said a flurry of economic data from the eurozone hinted at the potential problems lying in wait for the European Central Bank in the months ahead.
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