NEW YORK (MktNews> - The euro-dollar ended the day mixed, with traders showing a reluctance to either buy or sell the euro, as players are seen conflicted in their interpretation of the Fed's rate cut, sources said.
The Federal Reserve Bank lowered both the federal funds rate and the discount rate by 50 basis points and said it intends on maintaining an easing bias in the future.
Earlier, traders predicted that such a move would result in a sharply lower euro-dollar, but other than a brief dip following the Fed's announcement, the euro-dollar remained remarkably resilient.
One trader's interpretation was that the market needed to "get its teeth" into the rate cut and preferred to wait until other centers were in and liquidity might be better.
Another trader said that the text of the Fed's accompanying statement implied that they were concerned about growth both in the U.S. and abroad.
He said that market sentiment of late has been rewarding currencies whose countries promoted strong growth, but in this case economic growth was not forthcoming in the U.S. Therefore, it made sense not to buy the dollar.
"It is 90 percent clear by the Fed's statement, that there is another cut coming," the trader said.
He added, "If the U.S. isn't growing, there's no reason to reward the currency."
The euro-dollar was trading at $0.8781 at the close on Tuesday.
Dollar-yen maintained the firm tone it had held most of the trading session, traders said.
There are still real concerns about Prime Minister Junichiro Koizumi's ability to enact needed structural reforms and those who had wholeheartedly bought yen in recent weeks were now slowly unwinding those long yen positions.
Steven Saywell, currency strategist at Citigroup, saw more disappointment ahead for the market, especially given the uphill battle that Koizumi will be facing.
"At the weekend, Koizumi ruled out calling a Lower House election simultaneously with the Upper House election scheduled for late July," said Sabella, adding that the implications are clear that such a strategy is probably considered "too risky" by senior officials.
Saywell said this is "further evidence that the 'king-makers' of Japanese politics are still pulling the strings."
He said, "As a result, Koizumi may find difficulty in gaining internal support for his policies, suggesting broad reform ideals may not gain the more specific details that the market is seeking."
Dollar-yen ended the day at Y123.50, little changed from opening levels.
Support for dollar-yen lies around the Y123.00 area, with stop-loss dollar-yen sell orders on a break of Y122.90, traders said.
For now, traders said, it will be hard for dollar-yen to make any upward progress with dollar-yen sell orders in the Y123.70 area.
In general, the picture for currency markets, which was to be clarified by the feed's actions on Tuesday, appeared to be as muddier as ever, according to traders.
"I am not sure what to do," said one New York trader, voicing the sentiments of many.
U.S. equity markets were also unable to derive any pleasure from the change in rates, with the Dow Jones Industrial Average closing down 4 points to 10,873 and the NASDAQ up 4 points to 2,086.
Bruce Steinberg, chief economist at Merrill Lynch, said the days of both 50 basis point rate cuts and inter-meeting moves are "probably over" at this point.
"We expect a rebound in growth by the fourth quarter and strong growth during 2002," said Steinberg.
"But, so far that remains a forecast, and the Fed has to deal with the reality of how the economy looks right now, which is weak and fragile."
Steinberg said that calls for more easing, though at a more gradual pace than has been the case so far.
He expected the Federal funds rate to be down to 3.5 percent by late August.