Euro climbs to 5-month high after Fed hints at future moves to boost economy, lower rates

Euro hits 5-month high as Fed hints at future move

NEW YORK — The euro continued to surge against the dollar Wednesday after the Federal Reserve reinforced its message that it is willing to take more steps to support the U.S. economy and bring down interest rates.

Investors sold the dollar broadly on expectations that the Fed will act later this year, said UBS analyst Geoffrey Yu. The U.S. currency hit its weakest point against the yen since the Bank of Japan intervened in foreign exchange markets last week, and slid to a 2 1/2 year low versus the Swiss franc.

The Fed said on Tuesday that the economy’s recovery had slowed and it was willing to act, if necessary, to support prices and employment. If the Fed begins to buy up big amounts of U.S. debt, that would likely push U.S. interest rates down even further, making investments in dollars less attractive.

“It would appear that (it) is now the dollar’s turn to become the whipping boy of the currency markets again,” said CMC Markets analyst Michael Hewson. The dollar had gained strongly earlier this year as investors nervous about Europe’s debt problems and a slowdown in global growth bought up the dollar, a traditional “safe haven” currency. The dollar lost favor this summer, however, as the U.S. recovery weakened.

The euro, used by 16 European countries, on Wednesday jumped above $1.34 for the first time since April 27. It peaked at $1.3440 but later receded a bit. In the late afternoon, the euro traded at $1.3390, still up from its value late Tuesday of $1.3249. The common currency has gained about 2.5 percent just this week.

The dollar also slumped against other currencies. The British pound rose to $1.5669 from $1.5625. The dollar slipped to 84.54 Japanese yen from 85.06 yen, creeping to its weakest point since the Bank of Japan’s intervention. Traders are nervous that the Bank of Japan may step in again to weaken its currency if the dollar continues to drop against the yen.

The dollar also dropped to its weakest point versus the Swiss franc since March 2008 at 0.9837 francs. The dollar has rarely been worth less than the franc in modern foreign exchange trading, falling below parity for the first time in March 2008.

Later in the afternoon, the dollar traded at 0.9870 Swiss francs from 0.9983 Swiss francs Tuesday.

Investors consider the Swiss franc and yen safe haven currencies because Switzerland and Japan have big trade surpluses. Switzerland has acted as a beacon for European investors wary of the euro and economic conditions in some of Europe’s heavily indebted countries. Japan is also attractive to safety seekers because its government debt is owned mostly by domestic investors. That helps protects the country from the risk of “capital flight,” when investors rush to transfer funds out of the country.

In other trading Wednesday, the dollar rose to 1.0306 Canadian dollars from 1.0247 Canadian dollars, but was weaker against most other currencies around the world.