The dollar and the yen fell as a wave of global interest-rate cuts sparked a rally in Asian stocks, boosting demand for higher-yielding assets.
The greenback slid for a third day against the euro after the Federal
Reserve reduced its target lending rate to 1 percent and agreed to
provide $30 billion each to the central banks of Brazil, Mexico, South
Korea and Singapore. The yen dropped to a one-week low versus the
European currency on speculation the Bank of Japan will lower borrowing
costs when it meets tomorrow. South Korea's won jumped the most in a
decade.
``The significant easing of monetary policy will help the global growth
outlook,'' said Tony Morriss, a senior currency strategist at Australia
& New Zealand Banking Group in Sydney. ``We're seeing a major
correction of the U.S. dollar and Japanese yen. They were among the key
beneficiaries of the flight to quality that's being unwound.''
U.S. policy makers reduced the fed funds target by a half- percentage
point to 1 percent yesterday, matching a level reached in June 2003 and
before that during the Dwight Eisenhower administration in the late
1950s.
Gross domestic product shrank by 0.5 percent in the third quarter for
its biggest decline since the 2001 recession, data due at 8:30 a.m.
today in Washington will show, according to a Bloomberg News survey of
economists.
``The Fed is doing what it can given a weakening U.S. economy,'' said
Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. based
in Tokyo. ``This puts the focus on the interest-rate differential, and
that will force the dollar to go lower.''
The U.S. central bank has cut its 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
looming recession.
``The easing bias in the U.S. is going to continue,'' said Paresh
Upadhyaya at Putnam Investments in Boston, which manages $50 billion in
currency assets. The Australian dollar rose to 67.39 U.S. cents from
66.81 cents yesterday in New York on speculation a rate cut in China,
the world's largest consumer of industrial metals, will boost demand
for Australia's exports.
The yen also declined as investors speculated that the Bank of
Japan will cut borrowing costs tomorrow. It slumped the most since 1974
and stocks rallied after the Nikkei newspaper said Oct. 28 that policy
makers are leaning toward lowering rates.
``Selling orders for the yen are piling up,'' said Mitsuru Sahara,
senior currency sales manager at Bank of Tokyo- Mitsubishi UFJ Ltd., a
unit of Japan's biggest publicly traded lender. ``Stocks are looking
strong, and that takes some safe- haven flows away from the yen. A
possible BOJ rate cut is also a negative.''
EUR/USD from area of a session high on $1,3255 the pair has decreased in area $1,3050.