LONDON, Dec 12 (Reuters) - The dollar fell versus the euro on Wednesday after the previous day's quarter-point rate cut from the Federal Reserve disappointed investors hoping for more aggressive action to help the economy and credit markets.
The Fed trimmed both the benchmark fed funds rate and the discount rate for lending to banks by a quarter point, to 4.25 and 4.75 percent respectively. Some had expected a bigger discount rate slash to help strained money markets at year-end.
"The Fed delivered the bare minimum of what was possible and they didn't reduce the penalty on the discount rate," said Teis Knuthsen, head of FX research at Danske Markets in Copenhagen.
"The Fed's actions are consistent with a central bank that was late to the easing cycle and is behind the curve and we see pressure on the dollar in coming weeks."
However, the U.S. currency rallied versus the yen, while high yielders surged after a Fed source said the central bank was actively considering all of the tools it has available to address liquidity measures.
Some media reports said action from the Fed on liquidity could come within days, even as soon as Wednesday.
The year-end period traditionally sees thinner liquidity, but the situation is exacerbated this year by troubles in the U.S. subprime mortgage market and the subsequent credit crunch, which have left banks unwilling to lend to each other. Continued...
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