New York: The U.S. dollar declined, hitting a new record versus the euro on yesterday, after the Fed Reserve sharply cut interest rates to put off financial market disorder from seeping further into the U.S. financial system.

The Fed cut its key interest rate by 50 basis points to 4.75%, and also slashes its discount rate at which it lends directly to banking institutions, by 50 basis points to 5.25 per cent.

The dollar fell to a low of $1.3964 as compared to the euro, before trimming its losses to step down 0.5% at $1.3940 by mid-afternoon in New York.

In the meantime, the dollar dangled 0.8% to a new 30-year low of C$1.0190 versus the Canadian dollar and dropped 0.6% to $2.0080 against the pound.

But, the dollar climbed up 0.8% to Y115.95 versus the yen.

The Japanese currency suffer as the Fed’s decision assisted worldwide equity markets expand hard gains actuated by better-than-expected third quarter outcomes from Lehman Brothers, the US investment bank, earlier in the session.

Market analysts stated that the securities market rally aided encourage capitalists back into carry trades, in which the low-yielding yen is sold to finance the purchase of riskier, higher-yielding assets.

The yen came down 1.3% to Y161.60 vs. the euro, 1.2% to Y82.23 as compared to the New Zealand dollar and 1.6% to Y233.05 against the pound.

Earlier in the session, sterling descended to its most fallible level in about 18-months against the euro after UK inflation felled further below the Bank of England’s objective in August.

Analysts stated that the figures provided the central bank with an excuse to burn interest rates if troubles in the UK financial division intensified.

Daragh Maher at Calyon told that the case for a slash in UK interest rates was progressing, with inflation below where the Bank of England imagined when it brought out its quarterly inflation report just over a month ago.

Mr Maher said, “The Bank has already indicated that it would not want to lower interest rates simply as a step to bail out imprudent banks or ease pressures in the money markets. Yet, with inflation tracking lower than expected, the Bank could now argue that rates should be lower, irrespective of what is happening in the banking sector or the money market.”

Sterling fell to a low of £0.6973 vs. the euro, its weakest level since April 2006. Afterwards, it recovered to get up 0.1% at £0.6942.

David Woo at Barclays Capital stated, “We think the pound is unlikely to continue its recent sharp depreciation in the very short-run.”