Dollar falls against euro, yen

BERLIN-The dollar fell to record low against the euro on Monday, and sank to its lowest level in more than 12 years against the Japanese yen as investors reacted to the latest emergency rate cut by the U.S. Federal Reserve and to news that JPMorgan Chase is buying rival investment bank Bear Stearns for a fraction of what it was worth last week.In European trading, the euro rose as high as $1.5904 but soon fell back to $1.5746. That was still above the $1.5687 it bought late Friday in New York trading.The U.S. Commerce Department said that the deficit in the current account dropped by 9 percent last year to $738.6 billion. Later, the Fed said U.S. industrial output fell half a percent in February, the biggest amount in four months.The dollar fell as low as 95.72 Japanese yen, its lowest since August 1995, before recovering to 97.03 yen but still below the 99.21 yen it bought in New York on Friday. The dollar broke below 100 yen just last Thursday.The lows came a day after the Fed approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.5 percent.Also on Sunday, JPMorgan Chase & Co. said it would acquire Bear Stearns for $236.2 million in a deal backed by the Fed. JP Morgan will pay $2 per share, down from Bear Stearns closing price of $30 per share on Friday."It has certainly been something of an historic weekend, with an emergency Fed rate cut and news that J.P. Morgan intends to acquire Bear Stearns marking the next chapter in the credit crisis," said James Hughes of CMC Markets in London."Unsurprisingly this has been broadly bad news for the dollar with (the) euro-dollar managing a short-lived breach above 1.5900-yet another all-time record high-although this has been short lived with profit takers stepping in," Hughes said.The Fed is scheduled to meet Tuesday, and analysts are predicting that the central bank could reduce its 3 percent benchmark rate on overnight loans between commercial banks by as much as another percent.The European Central Bank, by comparison, has left its own rate at 4 percent as inflation in the 15-nation euro zone hit yet another record high last month.Lower interest rates can jump-start a nation's economy, but can also weigh on its currency as traders transfer funds to countries where they can earn higher returns.So far the ECB has remained steadfast in keeping its rates unchanged because inflation has been so high, but politicians and some companies have bemoaned the strong euro because it makes goods produced in the euro zone far more expensive elsewhere and undermines exports.However, at the same time, the higher euro can increase domestic purchasing power.The Bank of England said Monday it will offer an extra 5 billion pounds-around $10.1 billion-of reserves into the short-term money market because of conditions in the market.The dollar rose against the British pound, which fell to $2.0059 from $2.0218 on Friday.
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