Dollar Languishes Near Lows Ahead of Fed Decision

The dollar wobbled close to record lows against the euro and a 12-year trough against the yen in Asian trade Tuesday as markets waited anxiously for a key US interest rate decision, dealers said.

The Federal Reserve was widely expected to slash its key lending rate later in the day to try to ease turmoil on Wall Street and ward off the threat of a prolonged recession in the world's largest economy.

The dollar slipped to 97.12 yen in Tokyo afternoon trade from 97.32 in New York on Monday, when it had earlier struck 95.75, the lowest since 1995.

The euro firmed to 1.5767 dollars from 1.5725, edging up towards its all-time high of 1.5905 reached on Monday. The euro was at 153.16 yen after 153.07.

Investors were anticipating a bold move by the Fed to try to ease strains on the US financial system.

"There are wide views of what the Fed will do, with estimates ranging from a 50 to 125 basis points rate cut," said David Mann, currency strategist at Standard Chartered Bank.

"The dollar is still under a lot of negative pressure. The credit crisis is a US problem. It's hard to see what the Fed can do that is dollar positive," he said.

The Fed meeting follows an emergency cut by the Fed to one of its other rates on Sunday after Wall Street giant Bear Stearns fell victim to the credit crunch.

The Federal Open Market Committee (FOMC) has already slashed its key federal funds interest rate by 225 basis points to 3.00 percent since September to try to bolster the economy in the face of a US housing slump and related credit crunch.

It also lent billions of dollars to financial institutions in exchange for debt, such as the troubled mortgage-backed securities.

Investors fear that the Fed may be running out of ammunition to ease gridlock in US credit markets. Some analysts said that even a bold rate cut by the Fed later Tuesday would not be enough to prop up ailing markets.

The market "now thinks that a rate cut alone cannot resolve the bad debt problem and stem the deterioration of the economy," said NTT Smarttrade director Takashi Kudo.

Markets were waiting nervously for earnings results from US investment banks Lehman Brothers and Goldman Sachs later Tuesday, followed by Morgan Stanley on Wednesday, amid fears of fresh victims from the credit market turmoil.

"We are experiencing a meltdown in financial markets and the market is aware of the risk that this will have deeper consequences than an economic slowdown," predicted Daisuke Uno, chief strategist at Sumitomo Mitsui Banking Corp.

Traders were on alert for any signs that global financial authorities are considering coordinated action to try to stem the dollar's decline.

Adding to the nervous mood, deadlock over the next Japanese central bank chief deepened as the opposition signalled its disapproval of the latest nominee put forward by the government, just a day before the post falls vacant.

Against regional Asian currencies, the dollar fell to 1.3809 Singapore dollars in late Asian trade from 1.3868 a day earlier, to 1,011.00 South Korean won from 1,025.80 and to 9,270.00 Indonesian rupiah from 9,310.

It dropped to 30.75 Taiwan dollars from 30.97 and to 31.21 Thai baht from 31.41, while edging up to 41.68 Philippine pesos from 41.65.

Source: AFP

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