Capital Gold Group Report: DOLLAR PLUNGES TO 13 1/2 YEAR LOW ON YEN AS EURO RISES

WALL STREET JOURNAL – NEW YORK — The dollar sold off sharply versus major rivals a day after the Federal Reserve cut its target interest rate to between 0% and 0.25%.

In effectively reducing interest rates to zero, the Fed undercut any advantage to holding the dollar versus another currency. The central bank also signaled it would use “quantitative easing” as a main policy tool, which means it will flush the system with more dollars, essentially decreasing the currency’s underlying value.

That combination portends “significant dollar weakness going forward,” said Tom Fitzpatrick, global head of currency strategy at Citigroup Inc. in New York.

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The dollar selloff began Tuesday and extended into Wednesday morning. Low liquidity levels ahead of the year-end holidays exacerbated the moves.

Currency analysts said that after investors unwound bets in riskier trades over the past several months on global economic uncertainty, and with the amount of global trade decreasing, there is less liquidity in the foreign-exchange market. Fewer participants often leads to wild swings.

As the dollar consecutively broke through key levels, more traders piled on the trend. Also, many traders were caught on the wrong side of the market because the euro had been declining against the dollar from August to the beginning of this month. They were scrambling Wednesday to change or hedge those positions.

In a matter of two hours Wednesday morning, the euro advanced from $1.4058 to an 11½-week high of $1.4440, while the dollar fell to more than a 13-year low of 87.13 yen from 88.42 yen. The U.K. pound also rose to a five-week high of $1.5721, but gave back those gains.

Late in New York, the euro was at $1.4390 from $1.4128 late Tuesday, while the dollar was at 87.40 from 88.78 yen. The euro was at 125.78 yen from 125.43 yen. The U.K. pound was at $1.5499 from $1.5629, and the dollar was at 1.0745 Swiss francs from 1.1178 francs late Tuesday.

The fall of crude-oil futures to near $40 a barrel Wednesday — usually a euro negative — had limited effect on the currency market as investors focused on the implications of the Fed decision.

Citigroup’s Mr. Fitzpatrick expects the weak dollar trend to hold through the end of December. It is unclear whether the euro will lose ground in the new year, when some suggest the euro zone’s economic woes could grab the spotlight.

“At this point in time, it’s difficult to say when would be the end of this move,” he said. In this volatile market, “January is very far away.”

Elsewhere, Russia’s central bank allowed the ruble to weaken Wednesday for the second time this week and seventh time since early November. Russia has been under pressure to allow the ruble to depreciate due to the plunge in crude-oil prices and an exodus of capital from the country.

Traders in Russia said the central bank allowed for a slide slightly greater than the previous 1% increments. Traders suggested regulators may be capitalizing on the weakening of the dollar. The ruble’s exchange rate is fixed by the central bank to a basket composed of 55% dollars and 45% euros.

Meanwhile, the Ukrainian hryvnia fell to a historical low versus the dollar, despite intervention by the country’s central bank. The Ukrainian currency has shed nearly half its purchasing power since late summer.

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