Dollar Rises as Aggressive Fed Cut Fears Recede


The dollar rose on Friday as investors scaled back bets for another aggressive Federal Reserve interest rate cut next week and on optimism a $150 billion stimulus package would help support the U.S. economy.

The Fed's emergency 75 basis point interest rate cut on Tuesday, precipitated by sharp falls in global stocks, had seen short-term interest rate futures pricing in a half percentage point reduction in the central bank's overnight lending rate next week when the Fed meets for a scheduled meeting.

Early on Friday, rate futures suggested a 38 percent chance of a 50 basis point reduction in the fed funds rate target to 3 percent at the January 29-30 policy meeting.

The euro dropped to a session low of $1.4690, according to Reuters data. It was last trading at $1.4700, down 0.4 percent on the day.

The dollar rose 0.7 percent to 107.65 yen as the tax stimulus package calmed fears the United States would slip into recession, leading global stocks higher and pushing Wall Street to a firmer open.

Stock market moves are often regarded as a barometer of risk appetite, and financial markets have calmed down after swinging wildly earlier in the week.

Against the Swiss franc, the dollar rose 0.9 percent to 1.0967.


TradingEconomics.com, Reuters
1/25/2008 6:42:13 AM