Dollar slammed after Fed says recovery has slowed, it is ready to increase support if needed

Dollar slammed after Fed says it could do more

NEW YORK — Investors sold off the dollar Tuesday after the Federal Reserve said it was willing to take more steps to support the economy, which could push U.S. interest rates down even further.

The euro rose above $1.32 for the first time since Aug. 10, while the dollar touched below 85 yen for the first time since the Bank of Japan’s intervention in currency markets last week.

The Fed did not say that it planned to start a program of buying Treasury and mortgage bonds to drive down interest rates and stimulate the economy, but did say more strongly than it has before that it would do so if necessary.

“They’ve told us that they’re going to have to do something else if things continue the way they are,” said David Watt, senior currency strategist at RBC Capital in Toronto. The Fed is worried that companies are not hiring enough to bring down the unemployment rate, and that inflation is too weak to support growth.

The prospect of the Fed initiating such a step this year has been weighing on the dollar. Lower interest rates tend to hurt a currency’s value. The Fed has kept the key U.S. rate at a range near zero since December 2008, and signaled no intent to start increasing interest rates Tuesday.

In late afternoon trading in New York, the euro was worth $1.3249, up from $1.3062 late Monday, while the dollar dropped to 85.06 Japanese yen from 85.77 yen. The British pound gained to $1.5625 from $1.5545.

The expectation that the Fed will act when it meets next in early November is likely to drag on the dollar, said David Gilmore of Foreign Exchange Analytics.

In other trading late Tuesday, the dollar fell to 0.9983 Swiss francs from 1.0061 Swiss francs, and dropped to 1.0247 Canadian dollars from 1.0287 Canadian dollars.