MW: Dollar slips; euro retakes ground after rate cut
By Deborah Levine & William L. Watts, MarketWatch
NEW YORK (MarketWatch) -- The dollar lost ground against most major rivals Thursday, as investors bought back the euro after the European Central Bank and the Bank of England slashed interest rates in the face of rapidly-weakening economies.
The dollar index , which tracks the performance of the dollar against a trade-weighted basket of six major currencies, fell to 86.533 from 86.811 in late North American trading Wednesday.
The euro and the pound were initially lower earlier Thursday, as markets digested the rate cuts.
But in late trading, the euro was buying $1.2786, up from $1.2700 late Wednesday. The British pound was buying $1.4684, down from $1.4768.
"Reaction after the BOE announced was somewhat pound-positive. The decision was in-line with expectations and it seemed traders were in no hurry to push the British pound lower," wrote John Ross Crooks of Black Swan Capital, an independent currency advisory and trading firm, a note to clients Thursday.
The dollar also slipped against the Japanese currency, declining to 92.22 yen from 93.14 yen.
The dollar remained pressured by expectations that the U.S. will report Friday that at least 340,000 jobs were cut in November.
Data Thursday showed the number of Americans continuing to claim unemployment benefits is at the highest since 1982. See Economic Report on jobs data.
European rate cuts in focus
The Bank of England's Monetary Policy Committee voted to drop its key lending rate by a full percentage point to 2.0% -- the lowest level for the benchmark since 1939.
The European Central Bank's Governing Council slashed its key lending rate by 75 basis points, or three-quarters of a percentage point, to 2.5%. The cut is the largest in the ECB's 10-year history.
Surveys showed a majority of economists expected a half-point cut from the ECB. See full story on ECB rate cute.
The outsized cut "could be interpreted as evidence that the situation in the euro area may be worse than assumed and may even be seen as sign of panic" said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.
Interest-rate cuts are typically bearish for a currency because they reduce the yield on assets denominated in the currency. Foreign-exchange markets also factor in other considerations, including the impact of rate moves on the economic outlook.
Both the Bank of England and the ECB are expected to make further aggressive cut rates in coming months.
Although the U.S. Federal Reserve was quicker to cut interest rates sharply, the U.S. dollar rebounded strongly against the euro and the British pound this year.
The currency's gains have stemmed in part from massive de-leveraging and liquidation of foreign holdings, but have also been attributed partly to ideas that the U.S. economy may bottom out before other major economies.
