Dollar Slumps Below 96 Yen to 12-Year Low on Subprime Losses

By Stanley White and Kosuke Goto

March 17, Bloomberg

The dollar slumped below 96 yen for the first time in 12 years after the Federal Reserve cut its discount interest rate and financed the bailout of Bear Stearns Cos. by JPMorgan Chase & Co.

The dollar also dropped to a record low against the euro and the Swiss franc as the Fed lowered the rate it charges commercial banks for loans by a quarter percentage point to 3.25 percent to ensure ``orderly market functioning.'' Traders increased bets the Fed will slash its benchmark target rate by 1 percentage point tomorrow, making fixed-income securities issued by the U.S. government less appealing to global investors.

``The dollar is facing a credibility crisis,'' said Koji Fukaya, a senior currency strategist at Deutsche Securities, the Tokyo unit of Deutsche Bank AG, the world's largest currency trader. ``All the markets are entering a vicious cycle.''

The dollar fell to as low as 95.76 yen, the weakest since Aug. 15, 1995, before trading at 95.97 yen at 11:29 a.m. in Tokyo from 99.09 yen late in New York on March 14. Against the euro, the dollar declined to $1.5903, the weakest since the creation of the single European currency in 1999. It slid to an all-time low of 0.9754 Swiss francs. The dollar may fall to 95 yen this week, Fukaya said.

The currency set record lows against the euro for five consecutive days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce. The MSCI Asia-Pacific index of regional shares fell 2.3 percent, its third day of declines.

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photo: 1000 yen notes are arranged on top of U.S. one dollar notes in New York on March 7, 2008. Photographer: Andrew Harrer/Bloomberg News