Dollar firmer after Fed holds rates at record low

AP News
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Posted: Dec 16, 2009 3:49 PM

The dollar was firmer Wednesday after the Federal Reserve pledged to hold interest rates at a record low and keep them there for an "extended period."

Fed Chairman Ben Bernanke and his colleagues, noting an improvement in financial markets, also said they expect to wind down several emergency lending programs _ set up during the height of the crisis _ when they are due to expire next year.

"The end of the special liquidity facilities would seem to be a precondition of raising interest rates, which the market of course is sensitive to," said Marc Chandler of Brown Brothers Harriman.

The Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December. Higher interest rates, or the expectation of higher rates, can boost a currency as traders transfer funds to where they can earn higher returns.

The Fed also said the economy has "continued to pick up" and noted a recent slowdown in the pace of layoffs.

The U.S. dollar index, which measures the dollar against a basket of six other major currencies, remained near its highest point since Oct. 2.

In late New York trading, the 16-nation euro edged down to $1.4516 from $1.4529 late Tuesday. Earlier, the euro dropped as low as $1.4504 _ its weakest point since Sept. 10. The euro has been weighed down by worries about public finances in the region, particularly Greece's huge debts.

The British pound rose to $1.6310 from $1.6256, while the dollar inched up to 89.90 Japanese yen from 89.74 yen.

The dollar has rebounded strongly in December as traders lock in their gains on the euro's rise earlier in the year and investors wonder if the U.S. recovery will be faster and stronger than expected.

In other late trading Wednesday, the dollar slipped to 1.0397 Swiss francs from 1.0409 francs late Tuesday, and rose slightly to 1.0630 Canadian dollars from 1.0615.