A Day's Wages for a Loaf of Bread

Dollar Slumps as Markets Await Fed Decision

Dollar slumps against euro as markets await Fed decision on US economic support

November 2, 2010

AP - The dollar slumped against the euro Tuesday morning as the Federal Reserve began a two-day meeting that investors expect will result in a big bond-buying program to support the sluggish U.S. economy.

The euro rose to $1.4019 from $1.3888 in New York late Monday, despite resurgent worries about the euro-zone's more indebted countries -- Greece, Ireland, Portugal and Spain. Against a group of six major currencies, the dollar dropped 0.6 percent.

The Fed is expected to announce Wednesday afternoon that it will begin buying large amounts of U.S. government debt. That should drive down interest rates and trigger more borrowing and spending, but the prospect of higher inflation in the future has weighed on the dollar for months.

Analysts say markets expect a program of about $100 billion in monthly purchases spread out over at least half a year. A smaller plan could give the dollar some relief, they say.

The Fed's expected actions have eaten away at the value of the dollar, worrying the governments of big exporting countries whose currencies have soared in value. A stronger currency makes exports a tougher sell overseas and less profitable for companies.

Countries such as Brazil and Japan have moved to weaken their currencies, with mixed results. The yen on Monday struck its most recent 15-year high, just shy of its record high of the post World War II era of 79.75 yen. On Tuesday, however, the dollar bounced back to 80.73 yen from 80.57 yen late Monday.

The Australian dollar struck its highest level against the U.S. dollar since it became a freely traded currency in 1983. It moved above $1 Tuesday for only the second time since then -- the first time was in mid-October -- after the country's central bank unexpectedly raised its key interest rate. Australia's economy has surged because of strong demand from Asia for its iron ore and other commodities.

In other trading Tuesday, the British pound slipped to $1.6011 from $1.6033, while the dollar fell to 1.0103 Canadian dollars from 1.0177 Canadian dollars and dropped to 0.9786 Swiss francs from 0.9924 Swiss francs.

The dollar also weakened against the Scandinavian currencies and several currencies of developing Asian economies.