Euro hits 8-month high versus dollar above $1.38, while yen drops after Japanese rate cut

Tuesday, October 5, 2010

Euro hits 8-month high vs dollar, yen slips

NEW YORK — The expectation that the Fed will move to help the weak U.S. economy continued to drag on the dollar Tuesday.

The euro hit an 8-month high, the Swiss franc jumped to a record high and the dollar fell to its lowest point versus the yen since the Bank of Japan intervened in currency markets recently.

The Bank of Japan on Tuesday cut its main interest rate and said it was looking to set up other stimulus measures. Investors also expect the Federal Reserve to take more action to drive down U.S. rates. Of the major currencies, that makes the euro more attractive to investors because the European bloc of nations has a higher interest rate, said CMC Markets currency strategist Ashraf Laidi.

Investors don’t expect the European Central Bank to act further to drive down rates there.

The euro peaked at $1.3859, its highest point since early February, on Tuesday. Later in the afternoon, the euro traded at $1.3850 from $1.3686 late Monday. The common currency rose 7 percent last month, a significant swing in currency markets. It has already gained another 1.5 percent so far in October.

The dollar fell to 83.18 Japanese yen from 83.38 yen, earlier slipping below 83 yen for the first time since Sept. 15, when Japan intervened in foreign exchange markets to weaken the yen.

The Bank of Japan cut its interest rate to a range near zero from its previous target of 0.1 percent, and may set up a 5 trillion yen ($60 billion) fund to buy government bonds, which would support the economy by driving interest rates lower.

Lower rates typically weigh on a currency, but the yen rose versus the dollar. Many investors expect the Fed to make a similar move to bring down U.S. rates.

“The impacts on the (yen) will be negligible if the Fed the increases its asset purchases,” said Browns Brothers Harriman analysts in a research note. They said there was speculation that the Fed could buy from $500 billion to $1 trillion in Treasurys or other government holdings.

The dollar also fell to a record low at 0.9646 Swiss francs on Tuesday. In later trading, it was worth 0.9661 Swiss francs from 0.9727 Swiss francs on Monday.

The British pound rose to $1.5901 from $1.5833. The Australian dollar also hit its highest point versus the dollar since July 2008, while the dollar fell to 1.0160 Canadian dollars from 1.0227 Canadian dollars.

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