Forex-Dollar falls broadly as Fed slashes interest rates

The dollar sank to a fresh two-month low against a basket of major currencies on Wednesday after the Federal Reserve cut benchmark U.S. interest rates by a half percentage point and warned that more would likely be needed to support the faltering economy.

The move comes just eight days after the U.S. central bank unexpectedly cut its benchmark lending rate by three quarters of a point to boost an economy battered by a deep housing slump and a persistent credit crisis.

"The language in the (Fed's) statement was fairly strong, suggesting the Fed is still worried with the possibility of further deterioration in the U.S. economy," said Mark Meadows, analyst at Tempus Consulting in Washington, D.C.

The cumulative 1.25 percentage point reduction brings rates to 3 percent, a full percentage point below euro-zone rates and among the lowest in the developed world.

Dealers reacted by pushing the New York Board of Trade's U.S. dollar index, which measures the greenback against a basket of six major currencies, to a two-month low .DXY. The euro surged 0.8 percent to $1.4906 , not far from its all-time high around $1.4967, according to Reuters data, before easing to $1.4881.

The dollar fell 0.1 percent against the yen to 106.90 .

The Fed cuts also encouraged investors to move back into high-yield, high-risk trades. Both the Australian and New Zealand dollars rose more than 1 percent against the greenback, while the U.S. currency fell 1 percent against the Canadian dollar .