(Updates prices, adds quote)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 19 (Reuters) - The dollar slipped in choppy
trading on Wednesday, as investors kept their bearish view on
the low-yielding currency, while the yen firmed amid persistent
worries about the health of the global financial system.
The dollar, however, recovered from the day's lows after
news that regulators have lifted capital limits on mortgages
that Fannie Mae <FNM.N> and Freddie Mac <FRE.N> may purchase.
That could free up as much $200 billion in liquidity for the
stricken mortgage market.
But market sentiment on the dollar remained decidedly
negative as U.S. interest rates were still seen heading lower
even after a 75 basis-point easing to 2.25 percent by the
Federal Reserve on Tuesday.
The Fed move on Tuesday sparked a relief rally in equities,
a tightening in a broad range of spreads, and a rebound in the
dollar, although gains were fleeting. Investors resumed selling
the dollar and buying the low-yielding yen and safe-haven Swiss
franc on Wednesday.
U.S. stocks traded higher at midday, but price action was
volatile, as investors remained uncertain about problems in the
banking sector and the credit market.
"It's still a very dollar-negative environment as the Fed
is expected to cut to about 1.50 percent by mid-year and this
leaves the larger dollar sell-off trend still in place," said
David Powell, a currency strategist, at IDEAglobal in New
York.
"These moves that we see in the aftermath of the FOMC
statement, the Fannie and Freddie news are really temporary and
pullbacks do not imply a sustained dollar rebound," he added.
In midday New York trading, the euro was up 0.2 percent at
$1.5653, off the day's highs at $1.5785 and more than 2 cents
below Monday's record peak of $1.5904 <EUR=>.
The dollar was down 0.7 percent against the yen at 99.25
yen <JPY=>, trimming losses following the Fannie and Freddie
announcement. It hit a 13-year trough of 95.71 yen on Monday.
The dollar was also down 0.2 percent against the Swiss
franc trading at 1.0002 francs <CHF=>, way above record lows at
0.9637 struck last Monday.
The U.S. currency earlier took brief comfort from
stronger-than-expected earnings reported by Lehman Brothers
<LEH.N> and Goldman Sachs <GS.N> on Tuesday and Morgan Stanley
<MS.N> on Wednesday.
STILL A BLEAK DOLLAR OUTLOOK
Analysts say the outlook for the dollar remains bleak with
lower interest rates set to further cut the currency's yield
appeal.
In its statement on Tuesday, the Fed indicated it could cut
rates again, even though two voting members dissented against
the depth of the latest move. The rate futures market has
priced in a 58 percent probability of a 50 basis point cut to
1.75 percent <FEDWATCH>, down from about 94 percent early in
New York trading.
Tuesday's rate cut is the latest in a series of emergency
measures undertaken by the Fed to prevent the credit crisis
from escalating. On Sunday, the Fed cut its discount rate by a
quarter point and opened up discount window lending to major
investment banks, a tool not used since the Great Depression.
But these measures did little to ease the market's
concerns.
"A severe recession in the U.S. is clearly underway and
data are likely to continue to come in thick and fast,
providing evidence to that effect," said CitiFX in a research
note."
Sterling, meanwhile, fell as minutes from the Bank of
England's Monetary Policy Committee showed two of nine
policymakers favored a rate cut this month, which added to
speculation that UK rates are heading lower soon.
The pound fell as low as $1.9951 <GBP=> before trading back
up at $1.9871, down 1 percent from late on Tuesday.
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard
Satran)
