Dollar pares losses after Fed cuts interest rate

The dollar pared its losses against the euro and closed in the green after the Federal Reserve's decision to cut interest rates by 75 basis points, less than the market had expected.



Flurry of gloomy economic data from the US continued, as the Commerce Department on Tuesday reported a drop in US housing starts in February by 0.6 percent to a 1.065 million unit annual rate, down from 1.071 million units in January.



In the previous day the greenback had been under selling pressure in reaction to the Fed cutting its discount rate by 25 basis points to 3.25 percent on Sunday



Adding to the pressure on the greenback, the consumer confidence in US recorded a drop. The University of Michigan/Reuters index tracking consumer sentiment dipped to 70.5 in March from 70.8 in February.



Data from the US showed total industrial output fell 0.5 percent in February, much steeper than the expected rate of 0.1 percent.



Another release showed US homebuilders' confidence held steady in March. The National Association of Home Builders (NAHB) Housing Market Index for March remained unchanged at 20.



In a separate report, the US Labor Department said the consumer price index was flat in February against the expectations of a 0.2 % increase.



On Thursday, US Commerce department reported a worse-than-expected 0.6 percent fall in the Retail Sales in February.



The doubts about the effectiveness of the Federal Reserve's efforts also added pressure in to the greenback. Last day, the Federal Reserve had announced new steps to boost liquidity in the banking system.



Stronger-than-expected economic data from the Euro-zone, according to which industrial production posted a 0.9% rise in January and 3.8% rise annually, propped up the European currency to new highs against the Dollar earlier this week.



In a surprise move, the Fed said it would increase the size of its emergency auctions by $40 billion, which means providing $100 billion to primary dealers in US Treasury debt. It also would start a series of term repurchase transactions with the primary dealers that trade securities directly with the Fed, expected to be worth a total of $100 billion.



The Beige Book survey of the Fed reported softening or weakening in the pace of business activity in 8 of the 12 Fed regional districts; and subdued, slow or modest growth in others, confirming the slowdown in US economy since the start of the year.



Federal Reserve Chairman Ben Bernanke had given a grim assessment of the U.S. housing sector, adding to mounting fears of recession.

The Fed had lowered its 2008 growth forecast to 1.3 % - 2 %, from a forecast of 1.8 % - 2.5 % in November.

In a grave effort to prevent a global market meltdown in financial markets and a possible recession in the US economy, the Fed had lowered its lending rate by 75 basis points to 3.50% - a rare move between formal meetings of the central bank's policymakers in January; and again lowered the rate to 3 percent January 30th.

Medium Term Outlook Active trading above 1.4510 is the sign of weakness in dollar. Supports are 1.4630, 1.4755, 1.4788, 1.4966 and 1.5052. Resistances are 1.4450, 1.4320 and 1.4277. More weakness can be expected above 1.4968

In spot, dollar closed at 1.5624 (1.5727) against the euro, after trading in the range 1.5832– 1.5616.

Last day, DEUR June traded in the range 157.45 – 156.01 and closed at 156.23.