Dollar tumbles as Fed sees long stretch for low interest rates

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The dollar was the victim Tuesday as the Federal Reserve said it may hold short-term interest rates near zero for an additional two years.

The prospect of rock-bottom rates continuing through at least mid-2013 drove the dollar down sharply against other major and minor currencies.

The euro surged to $1.437 from $1.418 on Monday. The dollar slumped to 76.96 yen, down from 77.77 on Monday and nearing the recent record low of 76.76 reached July 29.

The DXY index (charted at left), which measures the dollar’s value against six other major currencies, fell 1.2% to 73.91. It’s still above the 2011 low of 72.93 reached April 29.

The Swiss franc, which has become one of the world’s favorite havens amid the latest market turmoil, was a huge winner as the dollar wilted. The buck’s value fell to a record low 0.721 francs, down 4.5% from 0.755 francs Monday.

The Australian and Canadian dollars also rose sharply against their U.S. counterpart.

Foreign investors looking for a place to park cash may find the U.S. less appealing if short-term interest rates stay low compared with other countries. That would lead to weaker demand for dollars.

A falling greenback saps Americans’ purchasing power abroad. But it’s a potential boon to U.S. exporters by making their products less expensive for foreign buyers.

-- Tom Petruno

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