Weak U.K. data sends pound to all-time low vs. euro
LONDON (MarketWatch) -- The dollar turned mixed versus major currencies Wednesday, a day after the Federal Reserve decided to cut interest rates to historic lows and expand a program of extraordinary lending and other measures to attempt to lift the U.S. economy out of recession.
The British pound tumbled to yet another all-time low versus the euro, meanwhile, dragged down by a further round of dismal economic data and indications the Bank of England stands ready to deliver further interest-rate cuts.
The dollar index a measure of the U.S. dollar against a trade-weighted basket of six currencies, traded at 79.938, little changed after its drop to 79.921 in North American activity late Tuesday.
The dollar plunged after the Fed decision Tuesday and remains fragile, strategists said. Economists said pressure on the dollar stems less from the rate cuts than from the Fed's commitment to boosting its balance sheet.
In its statement announcing the decision, the rate-setting Federal Open Market Committee said the central bank would use "all available tools to promote the resumption of sustainable growth and to preserve price stability." See The Fed.
Meanwhile, once widespread fears about dollar liquidity have given way to worries about an oversupply of the U.S. currency, strategists said.
"The world is awash with greenbacks; they're coming out of the woodwork, they're growing on trees, and the markets are concerned." said Stephen Gallo, head of market analysis at Schneider Foreign Exchange.
The Fed's actions are likely to further weaken the dollar in the short term, said Marco Annunziata, chief economist at UniCredit MIB. The dollar may be particularly vulnerable versus the euro with European Central Bank officials signaling they may pause in January before cutting interest rates further.
"I still believe the harsh macro reality (in the euro zone) will eventually force the ECB's hand, but in the meanwhile its reluctance could push [the euro] toward $1.45 by January," he said.
The euro erased earlier gains to trade near $1.4070, down from $1.4097 late Tuesday. The single currency had traded near $1.3792 before the Fed announcement.
The dollar fell versus the Japanese yen to 88.55 yen, down from 88.92 yen late Tuesday and near the 13-year low around 88.10 yen established last week.
The euro, meanwhile, soared against the beleaguered British pound, to trade above 92 pence - yet another in a series of all-time highs. In recent action, the euro changed hands at 91.95 pence, a gain of 2.3%.
The number of Britons claiming jobless benefits rose by a larger-than-expected 75,700 in November, the Office for National Statistics reported. The figure was well above consensus expectations for a 45,000 rise and is the biggest monthly jump in 17 years.
Meanwhile, minutes of the Bank of England's Monetary Policy Committee meeting unsurprisingly revealed a 9-0 vote in favor of the Dec. 4 decision to slash the central bank's key lending rate by a full percentage point to 2%.
MPC members weighed an even bigger cut, but held off due in part to worries it would put added pressure on the tumbling British pound.
Economists said Britain's sliding economic prospects make further easing by the MPC likely.
Policy makers are likely to cut the key rate by a half point to an all-time low of 1.5% in January as it awaits the chance to read the BOE's February inflation report at the following month's meeting, said Michael Saunders, chief European economist at Citigroup.
"Unless financial conditions improve sharply for the February meeting, further easing - and perhaps unconventional measures - will be on the agenda at that stage," he said, in a research note.
The British pound gave up early gains versus the dollar to slip to $1.5421 against the dollar from $1.5590.
