2008.12.1615:13:00UTC+00Dollar Plunges After Fed Cuts Key Interest Rate To Record Low

The dollar plummeted versus other major currencies Tuesday afternoon after the Federal Reserve slashed its key interest rate to a range between zero and 0.25% -- the lowest level on record.

The Fed also promised to use "all available tools" to battle what is shaping up to be the worst economic crisis since the Great Depression.

The move was the latest in a string of aggressive measures taken by the government to prevent a massive, prolonged recession.

The Fed said that since its last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.

Inflationary pressures have diminished appreciably, insisted the FOMC in its accompanying statement. This was confirmed by Tuesday morning's data showing that US consumer prices dropped 1.7 percent from the previous month, the largest monthly slide on record. This came as energy prices plummeted 17 percent.

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability," said the FOMC. "In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time."

The Fed's willingness to combat the housing crisis and weakness in the broader economy stands in stark contrast to the attitude of policy makers across the Atlantic. European Central Bank officials have been criticized for their overly hawkish stance on inflation and hesitance to cut rates.

The dollar plummeted against other majors, extending its 2 1/2 month lows versus the euro and moving back toward a 13-year trough against the yen.

The dollar dropped to 1.3986 versus the euro, extending its dramatic move away from a 2-year high of 1.2328, set 2 months ago.

Versus the resurgent yen, the dollar dropped to 89.20, moving closer to last week's 13-year low of 88.15.

The buck dropped to a 3-week low of 1.5510 versus the sterling, moving further from a 6-year high of 1.4466 set earlier in December.

The dollar dropped to a month and a half low of 1.2068 versus its Canadian counterpart, extending a 2-week downtrend.

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