Dollar drops as speculation grows on Fed move

NEW YORK, Sept 11, 2007 (AFP) – The euro flirted with a new record high against the dollar Tuesday as speculation increased about a Federal Reserve rate cut to help get credit flowing and stave off a US economic downturn. The single European currency fetched 1.3838 dollars at 2100 GMT after 1.3797 late Monday in New York. But the euro at one point rose to 1.3848 dollars, close its July 24 record of 1.3852.

Federal Reserve chairman Ben Bernanke made no mention of the economic outlook or interest rates in a speech Tuesday as market players were looking for signs on whether the US central bank might trim its base rate by 25 or 50 basis points.

But that did not stop markets from reacting to the speech given in Berlin, Germany.

“The omission sent mixed signals across financial markets, with some claiming that the Fed chairman effectively showed little objection to market expectations for up to 50 basis points in fed funds rate cuts on the month’s meeting,” said David Rodriguez at Forex Capital Markets.

“Such a concept likely explains the dollar’s immediate drop against the euro, which set intraday highs in mere minutes following the uneventful speech.”

The dollar meanwhile climbed to 114.28 yen against