Dollar rallies after Fed decision to hold rates steady at 2.0-pct

NEW YORK, September 16, 2008 (AFP) – The dollar rallied against the other main currencies Tuesday after the Federal Reserve surprised the market by holding interest rates steady and defied expectations of a rate cut.

The Fed decision to hold its base lending rate at 2.0 percent in the face of panic on the world financial markets appeared to boost confidence in the US economy and the dollar.

The US currency rose to 105.62 yen at 2100 GMT from 104.89 in New York late Monday, after briefing hitting a three-month low of 103.61 yen.

The euro changed hands at 1.4127 dollars against 1.4227 late Monday.

The Federal Reserve shook off pressure from markets and held its base lending rate at 2.0 percent Tuesday, suggesting the economy can muddle through the current turmoil without an immediate rate cut.

The Federal Open Market Committee cited “strains” in financial markets but said that the world’s biggest economy is likely to expand with the current low rates and other measures to increase liquidity.

“The Fed has made the correct decision,” said economist Sherry Cooper at BMO Capital Markets.

“The funds rate target at 2.0 percent is already very low and the FOMC is mindful of the hindsight cr