Dollar weaker vs. euro after Bernanke`s hint for Fed rate cuts

Most of the analyst predicts a 0.5% rate cut by the Fed this month

Federal Reserve chairman Ben Bernanke said yesterday in Washington DC that the Fed was ready to take substantial additional action to boost the economy, though the central bank was not forecasting a recession. “In light of recent changes in the outlook for and the risks growth, additional policy easing may well be necessary.” Bernanke`s words. That led the dollar down near a five-week low against the euro currency. At 07:30 GMT, the dollar was trading at 1.4800 euro after reaching a high level at 1.4817 early on Friday morning. The dollar/yen was quoted at 108.95, down from 109.72.

The weak housing and financial sectors caused by unpaid mortgages, rising unemployment, and falling consumer spending and investments have fanned fears the US is entering a recession. Most of the analyst predicts a 0.5% rate cut by the Fed this month would take U.S. policy rates to 3.75%, below the ECB's target of 4.0% and eroding the allure of U.S. assets for some investors.

Speculation that the Bank of Japan will keep its benchmark rate at 0.5%, the lowest among developed countries, at least within the first half of 2008 will keep the yen from gaining much against the other major currencies. Also a rising stock markets tend to make investors comfortable selling the low-yielding yen and buying higher-yielding currencies in the leveraged carry trade. The BOJ will meet to discuss monetary policy on Jan 21-22. Today the dollar dipped against the yen as renewed worries about U.S. financial institutions' losses from credit market turmoil eroded investors' risk appetite.