Dollar Declines as Players Take Profits From Rally and After Fed Boosts Rates
NEW YORK -- The dollar sagged yesterday, as news of a widely anticipated 0.50-percentage point rate increase by the Federal Reserve provided an excuse to take profits on Tuesday's powerful dollar rally.</br></br>The dollar also was depressed by the sell-off in U.S. Treasurys that followed the Fed's action, with bond-market participants concerned that U.S. economic growth will remain buoyant and thus prompt further Fed rate boosts.</br></br>The Federal Reserve decided at its policy-setting meeting yesterday to lift to 6% its Fed funds rate, or the rate banks charge each other for overnight loans. The Fed also raised to 5.25% the discount rate, or the rate at which it sells money to banks.</br></br>Explaining its decision, the Fed said that "despite tentative signs of some moderation in growth, economic activity has continued to advance at a substantial pace."</br></br>Traders, who had amassed dollars on Tuesday with the announcement of President Clinton's new aid package for Mexico, abruptly dumped them when the Fed made its announcement. The dollar fell quickly to intraday lows of 1.5150 marks and 98.85 yen within minutes of the Fed's statement; it recovered a little later in the session.