FOREX-Dollar at 8-mth high after Fed discount rate hike

* Dollar rises versus basket of currencies

* Euro breaks below key technical support

* Fed officials play down surprise move
(Adds quote, detail; previous TOKYO)

By Neal Armstrong

LONDON, Feb 19 (BestGrowthStock) – The dollar surged across the
board on Friday, driving the euro to a nine-month low in the
wake of the Federal Reserve’s announcement that it would raise
the interest rate it charges banks for emergency loans.

The Fed said late on Thursday the discount rate would be
increased to 0.75 from 0.50 percent, effective Friday, although
it left the benchmark federal funds rate, its main policy tool,
unchanged near zero. [ID:nSGE61I036]

Currency markets took the decision as a signal that the U.S.
central bank was starting to normalize policy, despite
assurances from one Fed policymaker to the contrary.

“Even though this is not an official tightening, it shows
that the Fed is at least ‘moving’. The Bank of Japan may require
more quantitative easing and the ECB cannot change its stance,
so that is why the dollar is rallying against the euro and the
yen”, said Antje Praefcke, currency strategist at Commerzbank.

At 0850 GMT, the dollar was trading up over 1 percent versus
a basket of currencies (.DXY: ) after rallying to an eight- month
high of 81.342.

The euro (EUR=D4: ) hovered close to a nine-month low of
$1.3444 versus the dollar hit after a break of key technical
support.

Traders said a 61.8 percent Fibonacci retracement of last
year’s rally from $1.2455 to $1.5145 had been taken out at
$1.3485, with a close below this level today opening the way for
further losses.

The dollar has been making gains over recent weeks on the
back of positive U.S. economic data, while structural problems
in the euro zone have weighed on the single currency, prompting
a fall of over 10 percent against the greenback since December.

“We continue to favour the dollar and expect that further
improvement in US data combined with persistent euro zone
sovereign credit concerns will be dollar-supportive,” said
analysts at UBS in a note.

Against the yen, (JPY=: ) the dollar rose to highest levels in
a month at 92.10 yen, remaining buoyed around the 92.00 level in
European dealing.

Technical analysts were eyeing the 200-day moving average as
the next resistance level to watch at 92.30.

TIMING

While the timing surprised the market, Fed Chairman Ben
Bernanke had said last week the central bank could soon raise
the discount rate. He had stressed, however, that the move would
not be akin to tightening monetary policy.

St. Louis Federal Reserve Bank President James Bullard said
investors belief in high probability of a rise in the Fed’s
benchmark rate this year was “overblown” and that the discount
rate rise should not be seen as a policy signal.

“The Bullard comments are an attempt to calm the markets
because the move came as a bit of a surprise, despite what was
said in the Fed minutes this week”, said Commerzbank’s Praefcke.

The Australian dollar extended losses despite hints by
Reserve Bank of Australia Governor Glenn Stevens that further
interest rate rises were likely. [ID:nSGE61H03Z]

The Aussie fell 0.5 percent to $0.8887 (AUD=D4: ) and shed 0.7
percent against the yen to 81.63 yen (AUDJPY=R: ). It also backed
off a decade high against the euro set the previous day.

Sterling also remained under pressure, dropping to a
nine-month low of $1.5377 versus the dollar (GBP=D4: ) as the
pound struggled in the wake of Thursday’s disappointing public
sector finance data.

Investment
(Additional reporting by Kaori Kaneko; Editing by Mike Peacock)

FOREX-Dollar at 8-mth high after Fed discount rate hike