Dollar Rises Versus Euro as Drop Considered Too Big to Sustain

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The dollar strengthened the most against the euro in almost two months as traders said the decline was too fast to be sustained after the Federal Reserve lowered the target lending rate to near zero this week.

The euro also weakened after the European Commission said the region may suffer a “substantial” effect from the financial crisis next year. The yen traded near a 13-year high against the dollar even after the Bank of Japan lowered its benchmark interest rate to 0.1 percent.

“This was the most concentrated, rapid rally in the euro since its creation,” said Robert Sinche, head of global currency strategy at Bank of America Corp. in New York. “The market got a little ahead of itself in the short run. We are getting a healthy correction now.”

The dollar climbed 2.5 percent to $1.3898 versus the euro at 3:53 p.m. in New York, from $1.4240 yesterday, when it slumped to a 12-week low of $1.4719. It gained as much as 3 percent, the biggest intraday increase since Oct. 24. The euro fell 2.8 percent to 123.88 yen from 127.44. The dollar traded at 89.12 yen, compared with 89.43. It dropped to 87.14 yen two days ago, the lowest level since 1995.

The U.S. currency declined 2.9 percent against the euro on Dec. 17, the biggest drop since the 15-nation currency’s 1999 debut. The Fed lowered its target lending rate a day earlier to a range of zero to 0.25 percent. It reiterated plans to purchase agency debt and mortgage-backed securities and said it will study buying Treasuries.

From Bloomberg News.