The dollar fell the most since
1998 against the currencies of six major U.S. trading partners as
economists forecast that the Federal Reserve will cut the target
lending rate by a half-percentage point today.
The
euro rose against the dollar for a second day after Chancellor Angela
Merkel said Germany will announce ``bold'' measures to bolster the
economy. The yen gained versus the U.S. currency as some traders judged
its biggest decline since 1974 yesterday was too much to sustain. ``The
anticipation of lower rates from the Fed has improved the sentiment in
the markets,'' said Stephen Malyon, co-head of currency strategy at
Scotia Capital Inc. in Toronto. ``The dollar is already overbought.'' ICE
Futures' Dollar Index, which tracks the greenback against the euro, the
yen, the pound, the Canadian dollar, the Swiss franc and the Swedish
krona, fell 2.2 percent, the biggest decline since October 1998. It
touched the highest level since April 2006 yesterday. The Fed will
lower its 1.5 percent target lending rate by a half-percentage point at
the conclusion of its two-day policy meeting today, according to the
median forecast of 70 economists surveyed by Bloomberg News. Policy
makers are scheduled to announce the decision at 2:15 p.m. in
Washington. Futures on the Chicago Board of Trade show a 46 percent
chance the central bank will cut rates by three-quarters of a
percentage point. The Fed has cut the benchmark rate from 5.25
percent in the past 13 months and created six lending programs
channeling more than $1 trillion into the financial system to limit the
severity of a recession. The Canadian dollar gained the
most in at least 37 years as its U.S. counterpart weakened and
commodities including oil, natural gas, copper and gold increased. The
Canadian dollar gained as much as 3.7 percent to C$1.2277 per U.S.
dollar. The pound rose 2.5 percent to $1.6301, bringing its
gain in the past two days to 4.7 percent. The U.K.'s main stock index
rose more than 4 percent and the central bank said lenders increased
mortgage approvals last month for the first time since June 2007.
The dollar touched $1.2330 per euro yesterday, the strongest in
more than two years, on concern the seizure of short-term borrowing
between banks may further slow global growth, encouraging investors to
take refuge in the greenback.
In
a sign bank lending started to thaw, the London interbank offered rate,
or Libor, that banks charge each other for three-month loans in dollars
dropped 0.05 percentage point to 3.42 percent, its 13th straight drop,
according to the British Bankers' Association.
