WASHINGTON, Sept 23, 2007 (AFP) – The dollar’s weakness and the euro’s rise to record highs have raised questions about confidence in the US currency following a surprising Federal Reserve half-point rate cut, analysts say.
Some are concerned that the dollar’s woes may prompt central banks to cash in their greenbacks, provoking a further downward spiral for the world’s largest reserve currency.
The Fed’s surprisingly large half-point cut in the federal funds rate to 4.75 percent Tuesday prompted some expected selling of the dollar. But it also caused unexpected weakness on the bond market by heightening fears about inflation. Gold meanwhile surged in another sign of concern about the US currency.
The euro has moved above 1.40 dollars for the first time and some analysts say it could go even higher. The greenback has fared somewhat better against the yen because of uncertainty in Japan, and versus sterling amid banking problems in Britain. But the Canadian dollar has hit parity with the greenback for the first time in three decades.
“Some analysts thought a Fed rate cut would push the dollar up and gold down. They argued the Fed was so tight that markets were being squeezed, and this was causing demand for