Dollar mixed as Fed starts to remove supports

Dollar falls against Euro, advances verses Pound as the US Fed Reserve scales back emergency lending programs

The dollar was mixed against major currencies Thursday as new jobless claims jumped unexpectedly, while the Federal Reserve took the first step toward removing the numerous emergency lending programs it launched last fall at the height of the financial crisis.
The third successful Treasury auction of the week helped boost confidence that Washington will be able to raise enough money to fund its economic recovery programs.

The dollar rallied Wednesday after the Fed left its key bank lending rate unchanged, while the European Central Bank lent record funds to banks to jump-start credit markets.

The Fed was widely expected to keep its key interest rate near zero at the conclusion of its two-day meeting. It pledged again to keep it there for "an extended period," and predicted inflation will remain "subdued for some time." This new language sought to ease Wall Street's concerns that the Fed's aggressive actions to revive the economy will spur inflation later on.

Cutting interest rates, or leaving them at record lows, can hurt the dollar as investors seek to invest in countries whose bonds yield higher returns. Unconventional methods of increasing the money supply have also prompted some fears of inflation down the road, which could eat away at the value of the greenback.

On Thursday, the Labor Department said new jobless claims jumped unexpectedly last week, while the number of people continuing to receive unemployment aid rose more than expected. The figures indicate that jobs remain scarce even as the economy shows some signs of recovering.

Meanwhile, the Fed said it will allow one program intended to support money market mutual funds to lapse by Oct. 31, and is reducing the amount it will lend to banks under two others.
The Fed also is extending through Feb. 1, 2010, five other programs scheduled to expire Oct. 31. That includes swap lines with 14 central banks that enable them to provide dollars to their financial systems in exchange for giving the Fed foreign currencies.

The changes are the first by the central bank designed to scale back its efforts to support the financial system. The Fed pumped trillions of dollars into commercial and investment banks through an alphabet-soup of emergency programs as the banks hoarded cash and refused to lend to each other and consumers late last year.


The Associated Press contributed to this article.