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Euro gains against dollar as Fed cuts discount rate

The euro climbed against the US dollar and the yen on Friday after the US Federal Reserve cut its discount rate to ease liquidity in the banking system and widening fears of a credit crunch.

The euro climbed to US$1.3472 around 9pm GMT on Friday, up from US$1.3425 late Thursday.

The euro was at ¥154.05, up from ¥152.85, and the dollar traded at ¥114.29, up from ¥113.86.

The Fed on Friday slashed its discount rate -- the interest rate charged on loans to commercial banks -- by a half-percentage-point in a bid to increase liquidity in the banking market.

Traders on the currency market welcomed the move, after a week of turmoil on the financial markets around the world.

"Although the Fed took no action on its benchmark fed funds interest rate target, which remains at 5.25 percent, this cut in the rate at which banks can borrow from the Fed is a sign that policymakers may be moving toward looser monetary policy," said Patrick Fearon, a currency analyst at AG Edwards.

Analysts said the Fed discount rate cut suggests the central bank will move soon to lower its federal funds rate, which has been at 5.25 percent since June last year.

The dollar also suffered from a surprisingly low reading in a US consumer confidence survey.

The Michigan Consumer Sentiment Index for the first two weeks of August fell sharply to 83.3 points from 90.4 points last month, below Wall Street forecasts of 88.5.

In late New York trading, the dollar was at 1.2078 Swiss francs, down from SF1.2165 late on Thursday.

The pound edged down to US$1.9809 from US$1.9827.
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