Dollar falls after Fed cuts rate

Special Report:Global Financial Crisis

NEW YORK, Dec. 16 (Chinese media) -- The dollar fell against

major currencies on Tuesday after the U.S. Federal Reserve cut its key rate to

record low.

The Federal Open Market Committee, rate decision body

of the Federal Reserve, voted unanimously to lower its target for the federal

funds rate by more than 75 basis points to a range of zero to 0.25 percent. The

central bank pledged to use all available tools to combat the financial crisis

and economic recession.

The Fed said in a statement that since its last

meeting in October, labor market conditions have deteriorated, and the available

data indicate that consumer spending, business investment, and industrial

production have declined. Financial markets remain quite strained and credit

conditions tight. Overall, the outlook for economic activity has weakened

further.

Meanwhile, inflationary pressures have diminished

appreciably. In light of the declines in the prices of energy and other

commodities and the weaker prospects for economic activity, the Fed expects

inflation to moderate further in coming quarters.

The Fed said it would employ all available tools to

promote the resumption of sustainable economic growth and to preserve price

stability. It anticipates that weak economic conditions are likely to warrant

exceptionally low levels of the federal funds rate for some time.

Analysts said the rate cut would translate into much

lower effective borrowing costs in the next few weeks, with the prime rate

dropping immediately to 3.25 percent, and mortgage rates moving down towards the

5 percent range within a few weeks. Some analysts worried that low rate could

lead to higher inflation in the future.

The Fed is expected to be moving forward aggressively

on government sponsored mortgage lenders and mortgage debt programs in

particular, as mortgage lending spreads remain pathologically high.

The euro bought 1.3976 dollars in late New York

trading compared with 1.3665 dollars it bought late Monday. The pound rose to

1.5469 dollars from 1.5253 dollars.

The dollar fell to 1.2127 Canadian dollars from

1.2389 Canadian dollars, and fell to 89.35 Japanese yen from 90.60 Japanese yen.

It fell to 1.1275 Swiss francs from 1.1602 Swiss francs.