(Recasts, updates prices, adds comment)
By Steven C. Johnson
NEW YORK, March 12 (Reuters) - The dollar tumbled to a
record low against the euro on Wednesday as doubts grew about
the long-term impact of recent Federal Reserve efforts to pump
money into cash-starved credit markets.
The greenback rallied a day ago after the Fed said it would
lend primary dealers $200 billion in Treasury securities and
accept a wider array of mortgage debt as collateral to ease
tight credit conditions.
But those gains fizzled out on Wednesday as the euro rose
above $1.55 <EUR=> for the first time in its nine-year history
as investors wondered whether the Fed's plan would do enough to
revive credit markets and boost a struggling U.S. economy.
"There was a knee-jerk reaction on Tuesday, but we're
seeing today that these measures haven't really helped mitigate
pressure in the financing markets," said Sophia Drossos, senior
currency strategist at Morgan Stanley in New York.
Matthew Strauss, senior currency strategist at RBC Capital
Markets in Toronto, said the dollar's turnaround on Wednesday
amounted to "a reality check" for markets.
"The Fed's move addresses short-term liquidity issues but
doesn't address underlying credit concerns and the U.S. housing
decline, which have not gone away," he said.
The euro hit a record peak of $1.5515, according to Reuters
Dealing data, before easing to around $1.5488, up 1 percent on
the day.
At a news briefing in Germany, European Central Bank
President Jean-Claude Trichet said for the second time this
week that he was concerned about excessive exchange rate moves.
But his remarks did little to temper euro gains on the day.
The euro is up 6.2 percent against the dollar so far this
year and 18 percent over the past 12 months.
Sterling hit a three-month peak at $2.0242 <GBP=> before
easing to $2.0211, up 0.7 percent from late Tuesday. The dollar
also surrendered most of the prior day's gains against the yen,
falling 1 percent to 102.39 yen <JPY=>, not far from an
eight-year low around 101.40 yen. Against the Swiss franc, it
was 1.2 percent weaker at 1.0210 francs <CHF=>.
Traders said the euro also got a boost overnight when data
showed euro zone industrial output rose by much more than
expected in January, suggesting the ECB need not rush to lower
interest rates.
And while investors have trimmed their bets for future Fed
rate cuts, futures markets are still pricing in a 2-in-3 chance
of a 75-basis-point easing this month alone.
The benchmark federal funds rate now stands at 3 percent,
below the 4 percent euro zone refinancing rate.
Strategists at Brown Brothers Harriman in New York said
recent strong euro zone data means the ECB may not need to cut
rates until the third quarter of 2008.
Also weighing on the dollar was Jordan's announcement on
Wednesday that it was set to reduce the greenback's share in
official foreign exchange reserves.
China's commerce minister also said his country should hold
its reserves in various currencies, raising more concern about
dollar selling.
But Qatar's central bank governor said on Wednesday that
there were no plans to change the country's exchange rate
regime, which pegs the riyal to the dollar.
Analysts have speculated that some Middle East oil
exporters such as Qatar or the United Arab Emirates could drop
their currency pegs, which would put more pressure on the U.S.
currency.
The dollar pegs make it harder for these countries to fight
rising inflation at a time when record oil prices are bringing
massive cash inflows into their economies.
A collective move to revalue their currencies "would be
more than a symbolic blow to the dollar's currency reserve
status," CMC Markets analyst Ashraf Laidi wrote in a research
note.
(Editing by Jonathan Oatis)
