Dollar Falls Below 97 Yen, First Time Since 1995, as Fed Cuts

The dollar fell below 97 yen for the first time in 12 years after the Federal Reserve cut its discount rate and financed a bailout of Bear Stearns Cos. by JPMorgan Chase & Co.

The dollar also dropped to a record low against the euro and the Swiss franc after the Daily Telegraph said yesterday Goldman Sachs Group Inc. will reveal $3 billion in writedowns when it releases quarterly earnings tomorrow. The dollar earlier trimmed losses after the Fed unexpectedly cut its discount rate by half a percentage point. Traders have also increased bets the Fed will slash the benchmark federal funds rate by 1 percentage point tomorrow.

The Fed's measures just provided a temporary impact, said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank. But those liquidity injections won't solve the problems. The injection of public money should be really needed. The dollar may fall to 96 yen this week.

The dollar fell to as low as 96.58 yen, the weakest since Aug. 28, 1995, before trading at 96.71 yen at 9:32 a.m. in Tokyo from 99.09 yen late in New York on March 14. Against the euro, the dollar fell to a record low of $1.5807. The dollar fell to an all-time low of 0.9804 Swiss francs.

The dollar also set record lows against the euro the previous four days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce.

Fed Meeting

Easing monetary policy, ongoing uncertainties in the financial sector and rising fears of capital outflows are chief reasons for our short-term bearish outlook.

The U.S. currency has lost about 16 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points to bolster the economy, lowering returns on dollar deposits.

The New York Fed agreed to provide financing through JPMorgan for up to 28 days after Bear Stearns said its liquidity position had significantly deteriorated. Bear Stearns shares fell 47 percent in New York trading.

The likelihood the Fed will cut its target rate for loans between banks by one percentage point to 2 percent at a meeting tomorrow rose to 56 percent on March 15, up from 6 percent a week earlier, futures on the Chicago Board of Trade showed. The balance of bets is on a cut to 2.25 percent. The euro region's main rate is 4 percent.

The dollar briefly recouped some of its losses after the Fed, in an emergency move, lowered the discount rate at which commercial banks borrow from the central bank to 3.25 percent from 3.50 percent. Primary dealers can borrow at the discount rate in exchange for a broad range of collateral, the Fed said in a statement today.