The euro fell to session lows against the dollar and yen Friday morning, reversing the gains it earned in the wake of the Federal Reserve's rate cut Tuesday. The euro fell below $1.3900 to an intraday low of $1.3875 and also fell to an intraday low of Y123.77.
This is a turnaround from the dramatic advance in the common currency over the previous two days, after the U.S. central bank slashed the fed funds target rate, effectively to zero, making the euro's yield advantage more pronounced.
Currency analysts said a lack of liquidity so near to the end of the year and Christmas holiday is creating these sharp market swings.
"Erratic action will dominate through the month," said Geoff Kendrick, a currency strategist at UBS in London. And while correlations between different asset classes become weaker in an illiquid market, the dive in crude oil futures may be putting its regular pressure on the euro.
Also, the U.S. currency may be gaining some support from the announcement by the White House on Friday that it will give struggling U.S. auto makers $17.4 billion in emergency loans from the Treasury Department's Troubled Asset Relief Program.
"The carmaker bailout will be positive for the dollar in short term," said Kendrick. Friday morning in New York, the euro was at $1.3932 from $1.4238 late Thursday, while the dollar was at Y89.24 from Y89.30, according to EBS.
The euro was at Y124.34 from Y127.18. The U.K. pound was at $1.4978 from $1.5015, and the dollar was at CHF1.1067 from CHF1.0839 late Thursday.
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