Dollar hovers at mid-106 yen after Fed's surprise rate cut

The U.S. dollar hovered at the mid-106 zone Wednesday in Tokyo after rising to the lower 107 yen level, with its upside capped because the U.S. Federal Reserve's surprise emergency interest rate cut failed to completely soothe investors' growing concerns about a U.S. recession.

At 5 p.m., the dollar traded at 106.52-54 yen, against 106.40-50 yen in New York and 106.01-03 yen in Tokyo at 5 p.m. Tuesday.

It moved between 106.09 and 107.38 yen, changing hands most frequently at 107.05 yen.

The euro was quoted at $1.4603-4605 and 155.56-60 yen, compared with late Tuesday's quotes of $1.4624-4634 and 155.68-78 yen in New York and $1.4380-4382 and 152.45-49 yen in Tokyo.

''Investors' appetite for risk somewhat recovered with the rate cut but how long this can be sustained will be the market's short-term focus,'' said Junya Tanase, forex strategist at JP Morgan Chase Bank.

The Fed on Tuesday slashed its key interest rate banks charge each other for overnight lending by 0.75 percentage point to 3.5 percent amid recent global stock price plunges that stemmed largely from the expanding subprime mortgage problem in the United States.

Dealers said the dollar's mild rise to the lower 107 yen level in Tokyo's morning deal was due to a sharp rebound of Tokyo stocks as investors welcomed the Fed's bold rate cut. Short-covering also gave a boost to the dollar, they said.

But the U.S. currency later lost its upward momentum and gave up some of its gains in the afternoon trading on profit-taking and dollar-selling by exporters, Tanase said.

Masafumi Yamamoto, head of foreign exchange strategy at the Royal Bank of Scotland, said market participants generally view Tuesday's rate cut alone as ''insufficient'' to resolve the U.S. housing slump.

Market players are now pricing in more rate cuts at the Fed's policy-setting Federal Open Market Committee meeting Jan. 29-30.

Ryohei Muramatsu, senior currency trader at Commerzbank, said the dollar will continue to be weak as investors will be inclined to think that the ''U.S. economy is that bad that it is forced to make this much rate cut in only a short time.''

Dealers said the dollar's weakness also stems from investors' moves to spurn investing in high-yielding, risky assets denominated in the U.S. dollar and other currencies as U.S. financial institutions continue to book subprime-related losses.

Muramatsu also said lackluster figures from so-called ''monoline'' bond insurers -- which insure against the risk of a bond or another security defaulting -- will become ''new'' factors for selling dollars.

Major U.S. bond insurer Ambac Financial Group Inc. said Tuesday it booked a $3.26 billion quarterly net loss, inciting credit fears stemming from the U.S. housing meltdown.