Dollar hits record low against euro

The dollar plunged to a record low against the euro this week after the Federal Reserve surprised investors with an aggressive interest rate cut.

The Fed cut its main interest rate by 50 basis points to 4.75 per cent on Tuesday and also cut the discount rate – at which it lends directly to banks – by 50bp to 5.25 per cent.

The Fed had been expected to deliver a 25bp cut. Analysts said the size of the move intensified fears over the state of the US economy, heightening expectations that the Fed would deliver a series of cuts in the months ahead.

Moreover, analysts said the subsequent rally in equity markets and risk appetite resulted in less safe haven demand for the dollar from US investors repatriating funds from overseas.

Meanwhile, there were signs that foreign investors were beginning to shun US securities as the Treasury TICS data revealed a collapse in portfolio capital inflows to the US in July as well as a growing reliance on short-term inflows.

The dollar fell through the $1.40 level against the euro for the first time, hitting a record low of $1.4120 on Friday. Over the week, the dollar lost 1.5 per cent against the single currency.

Source: ft.com