NEW YORK (AFP) — The dollar slid against the euro but gained on the yen Tuesday after the US Federal Reserve unexpectedly slashed interest rates by a record three quarters of a point to help ward off recession.
The euro was at 1.4628 dollars around 2200 GMT, up sharply from 1.4455 dollars late Monday.
The European single currency earlier had fallen to 1.4365 dollars before the Fed announcement, amid stock market turmoil over mounting signs the world's largest economy could be sliding into recession.
The dollar climbed against the Japanese currency, to 106.45 yen, up from 105.97.
The Fed's unprecedented cut, bringing its key federal funds rate to 3.50 percent, eased somewhat investors' fears of a US recession that have sent stocks tumbling, but lowered investors' return on the currency, analysts noted.
The inter-meeting rate cut means the US dollar is the third-lowest-yielding currency in the developed world, ahead of the Swiss franc and the Japanese yen, said Kathy Lien, chief currency strategist at Forex Capital Markets.
Lien noted that a little more than five months ago, US interest rates were the fourth highest in the developed world.
For the first time since December 2004, the dollar's yield fell below that of the eurozone currency, where the European Central Bank has rates pegged at 4.0 percent.
"The big problem for the dollar is not just today's move by the Fed, but the reality that further easing will come sooner and deeper than everyone expects," she said.
"It is quite possible that we may even return to one percent interest rates because the problems that the US economy faces now are more severe than the problems it faced when the tech bubble burst" in 2001.
Dealers said the dollar had a roller-coaster ride alongside stocks as investors tried to get a fix on the US outlook amid growing worries the collapse of the US housing market and a credit crisis will put the economy into reverse.
There had been growing speculation the Fed would act before its scheduled January 29-30 meeting following Monday's global rout on stock markets but the move caused some concern that the situation must be dire to merit such a dramatic measure.
"The implications for the dollar are slightly complicated," said Derek Halpenny, senior currency economist at the Bank of Tokyo Mitsubishi UFJ.
"Risk aversion has in recent days come to the aid of the dollar ... however, further aggressive monetary easing will substantially erode any yield support for the dollar," Halpenny said.
In late New York trading, the dollar was at 1.0948 Swiss francs, down from 1.1082.
The pound stood at 1.9611 dollars, up from 1.9434.
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