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Dollar sheds post Fed gains Thomson
Financial The dollar has shed most of yesterday's gains in the wake of Wall Street's sharp rally following the US Federal Reserve's decision to lower its benchmark interest rate by three quarters of a percentage point to 2.25 pct. After the Fed's rate cut, which was slightly less than the market consensus for a full 100 basis point reduction, the Dow Jones index of leading US shares enjoyed its best day in five years, helping the US currency to rally too. The euro fell down towards the 1.56 usd mark while the dollar climbed back above 100 yen. 'This rally hasn't been sustained and there's already a bit of a hangover after yesterday's celebrations creeping in,' said James Hughes, analyst at CMC Markets.
'It's going to be a case of simply sitting back and seeing just how far the major crosses do unwind now and whether there is any net effect of the rate news, but so far saving that quarter percent for a later cut is looking as if it may be little more than a very brief shot in the arm,' he added. The Fed's accompanying statement proved to be more hawkish than many
had expected. It showed that the Federal Open Market Committee (FOMC)
was divided, with two of the ten governors favouring 'less aggressive
action.' Antje Praefcke, currency strategist at Commerzbank Corporates & Markets, said the Fed's stance is unlikely to comfort markets for too long, given the ongoing uncertainty in credit and financial markets, despite good quarterly results yesterday from Goldman Sachs (NYSE:GS) and Lehman Brothers. (NYSE:LEH) 'It will take months before light is expected at the end of the write
downs and revaluations tunnel and the flight into quality is likely to
continue for the time being,' said Praefcke. 'Therefore, we think that
the Swiss franc and the yen as well as the euro will push higher against
the dollar.'
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