In the currency market, the dollar slipped against the euro. Late Tuesday, the euro was trading at $1.3653 vs. $1.3492 on Monday. In the latest government move to ‘fix’ the credit problem, the Federal Reserve announced that it would create a Commercial Paper Funding Facility, which will buy commercial paper, in a transparently desperate attempt to revive frozen credit markets and ease borrowing costs.

“This is an important step that should help keep a bit of a firewall between the credit crunch and the real economy, and is one of the steps needed to break the money market logjam,” wrote Doug Porter, senior economist at BMO Capital Markets.

Porter added that, “Still, the problems besetting the credit markets are so multidimensional that no move will be a single fix … Notably, the Fed seemingly wants to attempt every liquidity measure in its toolkit before taking the step of cutting its funds rate.”

Some were speculating that the Fed, along with other major central banks, might orchestrate coordinated cuts in interest rates as worldwide markets tank. Bernanke fueled the fire by saying that, “In light of developments, the Fed will need to consider whether the current stance of policy remains appropriate.”

Adding more fuel was the release of minutes from the Fed’s September 16 rate policy meeting, at which some members already favored a cut.

But, “While the Fed chief is clearly leaving the door open for a rate cut ahead, amid downside expectations for growth, it’s not clear it is a done deal yet,” said analysts at Action Economics.

Source: Dollar slips vs. euro as Fed promises to buy commercial paper – Coordinated world rate cut seen as possibility.