(Recasts, updates prices, adds quotes, changes byline,
dateline; prior LONDON)
By Kevin Plumberg
NEW YORK, Jan 28 (Reuters) - The dollar fell on Monday as a
sell-off in Asian and European equities bolstered expectations
that the Federal Reserve will have to cut interest rates
aggressively to boost U.S. economic growth.
The Fed will announce its decision on Wednesday, about a
week after the central bank unexpectedly slashed its benchmark
interest rate by three quarters of a percent, a move that has
weighed on the dollar.
"With the market pricing in a strong chance that the
Federal Reserve follows up last week's nearly unprecedented 75
basis point inter-meeting rate cut with another 50 basis points
on Wednesday ... we argue the dollar has already become a
financing currency, joining the ranks of the yen and Swiss
franc," strategists at Brown Brothers Harriman in New York said
in a note.
Short-term U.S. interest rates are among the lowest in the
developed world, encouraging investors to borrow in dollars and
buy another currency to profit on the difference in yields,
which would put pressure on the dollar.
The euro rose 0.5 percent to $1.4740 <EUR=>, rising for the
fourth session out of the last five. Against the Swiss franc,
the dollar was down 0.5 percent to 1.0910 francs <CHF=>.
The dollar was relatively unchanged at 106.80 yen <JPY=>.
The euro rose 0.6 percent to 157.63 yen <EURJPY=>.
European stocks fell around nearly 2 percent and equities
in Tokyo tumbled 4 percent. Wall Street futures also pointed to
a lower open.
"The feeling is of a moderate risk aversion, really
currencies are taking their cues from the equity market," said
Adam Cole, global head of FX currency strategy at RBC Capital
Markets.
"The mood's certainly negative on the U.S. economy and U.S.
equity market," he added, noting that this was also
dollar-negative as long as it did not spark a rush of
repatriations from U.S. investors as in previous recessions.
Interest rate futures currently reflect a roughly 80
percent chance of a half percentage point rate cut by the Fed
this week. Such as move would bring its benchmark lending rate
to 3 percent, or 100 basis points below the euro zone's key
interest rate.
In addition to the Fed policy meeting, investors will have
to navigate a calendar chock full with U.S. economic data,
including December new home sales at 10 a.m. (1500 GMT), gross
domestic product for the fourth quarter and the non-farm
payrolls report on Friday.
Events later in the day feature results from corporate
heavyweights including American Express <AXP.N>, as well as
speeches by a few European Central Bank officials and President
George W. Bush's State of the Union address.
Bush and congressional leaders have been trying to thrash
out a $150 billion stimulus package to help to limit the
economy's downturn this year from a reeling housing market.
(Additional reporting by Antonina Vorobyova; Editing by Tom
Hals)
