Dollar slips on worries for US economy after Fed trims rates

The dollar fell against the euro on Wednesday after a quarter-point interest rate cut from the US Federal Reserve failed to dispel jitters about the outlook for the US economy.

In early European trading, the euro rose to 1.4685 dollars from 1.4655 dollars in New York late on Tuesday.

The dollar dropped against the euro in the wake of the decision by the US Federal Reserve's Federal Open Market Committee (FOMC) to lower its benchmark Fed funds rate by 25 basis points to 4.25 percent.

The cut disappointed some investors who had been seeking a more aggressive reduction to help shore up stocks and the American economy in the face of the ongoing fallout from the US subprime mortgage crisis, dealers said.

But a half-point reduction might have hurt the greenback if it discouraged investors from holding on to their dollar-denominated investments, they added.

The Fed also cut the discount rate, its lending rate for commercial banks, by a quarter point to 4.75 percent, despite some analyst forecasts for a sharper 50 basis point cut to help stimulate credit flows.

"The negative reaction in the financial markets to the decision of the FOMC to lower the federal funds and discount rates by 0.25 points underlined the very difficult financial market conditions that still prevail and indicated that more monetary easing will be required in order to limit the impact on the real economy," said analyst Derek Halpenny at The Bank of Tokyo-Mitsubishi.
The US cut followed a decision by the Bank of England to cut British interest rates to 5.50 percent last week while the European Central Bank held eurozone borrowing costs at 4.0 percent.

"The Fed's action does not match its view of the economy," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

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