Dollar declines on Fed move, discount sale of Bear Stearns

Story link: Dollar declines on Fed move, discount sale of Bear Stearns

The US dollar weakened Monday after a weekend during which the US Federal Reserve cut its discount rate, the rate it charges banks to borrow money, by a quarter of a percentage point to 3.25 percent at an unscheduled meeting and JPMorgan Chase (NYSE: JPM; TYO: 8634) bought the troubled Bear Stearns (NYSE: BSC) for $2 per share, a tenth of its value on March 14.

In addition, the dollar fell on a decline in manufacturing activity in the New York region in March after the New York Fed’s general economic index fell from minus 11.7 in January to minus 22.2 in March, a record low.

Traders are now betting that the Fed will cut its main interest rate by at least 1 percent when it holds its regularly scheduled meeting on Tuesday.

At just before noon in New York the dollar was trading at $1.5749 to the euro after dropping to $1.5903, a new low, earlier.

The dollar also hit a new low versus the Swiss franc at SFr0.9638 to the dollar while it traded at SFr0.9865 around midday in New York.

The greenback was also lower in relation to the yen, dropping as low as ¥95.76 before trading at ¥97.1650 at just before noon.

The pound was also lower on the session on fears that the credit crisis will slow demand for high-yielding currencies and ahead of a report due Tuesday in which the government is expected to say that UK inflation was up in February, remaining above the Bank of England’s 2 percent target for the fifth month in a row.

At just before noon in New York, the pound traded at $2.0073 in relation to the US dollar while it was at 78.46p to the euro after earlier trading at 79.12p to the shared currency.

The Australian and New Zealand dollars were also weaker on worries that the demand for high-yield currencies will decline, with the aussie trading at A$1.0868 to the dollar and the kiwi at NZ$1.2462 to the dollar in midday trade in New York.