FOREX-Dollar falls vs euro on Fed meeting; up vs yen
(Recasts, adds comments)
NEW YORK, March 18 (Reuters) - The dollar traded near record lows against the euro on Tuesday amid expectations for an aggressive Federal Reserve interest rate cut, while it rebounded versus the yen as stocks rallied and investors' appetite for risk revived.
Markets are pricing in a cut of at least 100 basis points to the Fed's benchmark lending rate from the current 3 percent as the central bank tries to revive the struggling economy. The Federal Reserve's policy-setting panel, which meets on Tuesday, is expected to issue a decision around 2:15 p.m. (1815 GMT).
Expectations of rate cuts deepened after JPMorgan Chase's (JPM.N) deal to purchase stricken rival Bear Stearns BSC.N for a rock-bottom $2 a share and the Fed's emergency step of cutting its discount rate by 25 basis points on Sunday.
The greenback, which sold off on Monday, remained under pressure on Tuesday, although it advanced against the yen as stronger-than-expected results from Goldman Sachs (GS.N) and Lehman Brothers LEH.N eased some investors' concerns about the health of the U.S. financial sector.
Demand for the Japanese yen tends to increase as investors' aversion to risk grows. As U.S. stocks rallied, with investors willing to take on more risk, the dollar recouped some of its Monday's sharp losses versus the low-yielding yen.
The dollar on Monday had tumbled to record lows versus the euro, Swiss franc and a basket of major currencies and had fallen further below the 100 yen mark.
"There were still fears lingering about possible liquidity problems in banks such as Lehman Brothers. But given the bank released better-than-expected results, in combination with another solid report by Goldman, the dollar bounced back against the yen," said Mark Meadows, a market strategist at Tempus Consulting in Washington.
"But the rate decision later today is still weighing on the greenback against most other currencies."
Meadows said he expects the central bank to cut the benchmark rate by 75 basis points.
The euro was up 0.3 percent at $1.5768, moving toward Monday's record peak of $1.5904 EUR=. The dollar was down 0.2 percent against a basket of six major currencies .DXY at 71.335.
The Canadian dollar, meanwhile, rose to session highs versus the greenback as above-forecast February core inflation data was seen limiting the scope for future rate cuts CAD=.
The dollar was up 0.9 percent on the day versus the low-yielding yen but, at 98.32 yen, stayed under the 100 mark breached last week JPY=. It also remained below parity at 0.9911 Swiss francs CHF=.
"Markets have stabilized but that's not changing the fundamental situation in the U.S.," said Geoffrey Yu, FX strategist at UBS in Zurich.
"There is speculation the Fed could cut rates by 100 basis points. That's going to put the U.S. as the second lowest-yielding currency in the G10, below even the Swiss franc. We might be entering the stage when people will be looking at the dollar as a funding currency," he added. Continued...
