LONDON: The dollar firmed against the euro on Thursday but remained near a record low point after Federal Reserve chairman Ben Bernanke signalled the prospect of more cuts to US interest rates, dealers said. In European trading, the euro dipped to $1.5104 from $1.5119 in New York late on Wednesday. The single currency had surged to a record high of $1.5144 earlier on Wednesday. The dollar rose to 106.50 yen from 106.45. The dollar slumped to an all-time low against the euro after Bernanke had said that the US central bank was prepared to cut interest rates further to ward off a severe economic slump. The market has maintained its expectation that the Fed will deliver at least a 50 basis point cut at its meeting on March 18, with a 14 percent probability that it could be a 75 basis point cut, said ABN Amro analyst Melinda Smith. The United States, which is the world s largest economy, is weathering one of the worst housing slumps in decades, food and energy prices are spiking and the economy lost jobs in January. The mounting economic strains have weakened the dollar s value on foreign exchange markets, in part as some speculators have sold their dollar holdings. Bernanke s testimony reinforces fears that the US might fall into a recession, said Tim Condon, research head at ING Financial Markets. The US economy will likely contract this quarter owing to tepid consumer spending, a rising jobless rate and a slump in the housing and financial sectors, he added. Bernanke said downside risks to growth were buffeting the US economy. The market was able to confirm its hope that the Fed would cut rates again, and took it positively as a sign the Fed was listening to the market, said Yosuke Hosokawa, chief forex strategist at Chuo Mitsui Trust Bank. The Fed has cut its fed funds rate by 2.25 percentage points since last September after the subprime crisis rocked global markets. US borrowing costs currently stand at 3.00 percent. Market players were also looking ahead to the European Central Bank s monetary policy meeting next week where interest rates are expected to be left on hold at 4.0 percent, analysts said. The ECB has remained hawkish in its monetary action position owing to simmering inflation. Receding expectations for a rate cut in the eurozone will continue to support the euro and possibly send it to around the $1.525 level, said Daisuke Uno, a strategist at Sumitomo Mitsui Banking. Investors who had bet on a rate cut, because of the spread of the credit problem to the eurozone and a possible economic slowdown, are now revising their view, he added on Thursday. In Europe on Thursday, the euro changed hands at $1.5104 against $1.5119 late on Wednesday, at 160.87 yen (160.96), 0.7622 pounds (0.7631) and 1.6053 Swiss francs (1.6075). On the London Bullion Market, the price of gold fell to $956.66 an ounce from $959.50 late on Wednesday, when it had also struck a record high $964.99.
