Dollar falls after Fed

The dollar fell against a mixed bag of currencies and long-term treasury prices retreated from their highs Wednesday after the Federal Reserve announced it again is cutting interest rates.

In a widely-anticipated move, the central bank trimmed its key federal funds rate by a quarter of a percentage point to 2%. But the Fed also signaled its intention to put rates on hold to fight inflation.

The Fed's decision follows a government report that indicated the economy continues to be hampered by higher energy and food prices. The Commerce Department estimated that the U.S. gross domestic product during the first quarter rose at a very modest seasonally adjusted annual rate of 0.6% during the first quarter, though the figure came in better than the market anticipated.

Joe Balestrino, a portfolio manager at Federated Investors, said most fixed-income investors are focusing on what the central bank says about the economy. He said recent statements by the Fed have taken a softer tone in describing economic conditions, indicating that its rate cut campaign has been working.

"They've acknowledged strains in the financial markets driving their monetary policy, and those strains have now been somewhat reduced," Balestrino said. "Right now you have the combination of an economy that stopped going backward, and a financial market that has significantly improved."

Treasurys: The 30-year long bond rose 14/32 to 96 20/32 and yielded 4.58%, up from 4.38% just prior to the Fed's announcement, according to BGCantor Market Data.

Prices and yields move in opposite directions.

The benchmark 10-year Treasury note rose 3/32 to 97 15/32 and yielded 3.75%. Bond prices and yields move in opposite directions.

The 2-year note fell 5/32 to 99 22/32 and yielded 2.27%, down from 2.40%.

The Treasury Department said Wednesday it plans to sell $21 billion of new securities in its quarterly refunding. The government plans to auction $15 billion of 10-year notes on May 7 and $6 billion of 29 1/2-year bonds on May 8.

In addition, the Treasury said it plans to revive the sale of one-year bills as a way to raise money to combat the federal budget deficit. The government said the economy's decline has hurt tax receipts, and increased its funding needs.
Check the latest currency rates

Dollar: The dollar fell against foreign currencies after the Fed's announcement.

The euro bought $1.5615, up from $1.5564 just prior to the release, and the British pound rose to $1.9877 up from $1.9847.

The dollar rose versus the yen to ¥103.95, down from ¥104.55 before the Fed.

Lower interest rates can boost the economy, but they tend to be inflationary, leading traders to transfer funds to countries where they can earn higher returns.

Source: Cnn