The dollar is falling sharply as the current economic slowdown outweighs yesterday's market rally in trader sentiment.

When the

Federal Open Market Committee announced a surprise 50 basis-point rate cut yesterday afternoon, the U.S. equity markets responded with massive upward movement. The

Dow closed 300 points in the green and the

Nasdaq had its biggest day ever. As a result, the dollar picked up value across the board, pulling over 2 cents off of the euro/dollar cross.

Still, Tamiko Bayliss, currency strategist at

Commerzbank

in London, thought "that we would see more of a

dollar rally when the rate cut was first announced."

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Trader sentiment seems to be the same as Bayliss', with other major currencies retracing the post-rate-cut rallies of the dollar.

"The euro/dollar is pretty volatile at the moment," Bayliss said, "It is driven by great differentials." Early this morning, the euro had gained over 2.5% on the dollar from yesterday, breaking back over the 95-cent level.

The reasoning for this seems obvious, the rate cut yesterday, while sending the market indices skyrocketing, is still "confirmation by the

Fed that the U.S. economy is slowing very, very quickly," Bayliss said, adding that "euroland is growing at a steady 3%." The disparity in economic growth is supportive of the euro/dollar cross.

The euro was recently trading at $0.9448, up strongly from yesterday's close of $0.9281. In a longer term perspective, Bayliss believes that the past month's upward trend in the euro is a result of a previous overshooting in the euro/dollar rate, and that parity might be attained by the Easter holiday. Asked whether the euro might re-attain the $1.18 level at which it was first introduced, Bayliss replied that "there's no reason why not." But it will take time.

The euro/yen snapped back after a large fall yesterday, when monies were flowing out of Europe and into Japan. The euro/yen cross was trading most recently at 108.20, up strongly from yesterday's close of 105.45.

While the dollar rallied against most currencies yesterday, it did fall against the yen. But today, the dollar is again making gains on the troubled Japanese currency.

"The U.S. economy looks bad, but Japan looks worse, particularly because it is so dependent on the U.S.," Bayliss noted. The dollar/yen was recently trading at 114.47, up from a close yesterday of 113.65.

The other major currencies are also reversing yesterday's losses. The British pound was trading at $1.4952, up from its last close of $1.4907. The Australian dollar is gaining on the U.S. currency, most recently hitting levels of $0.5638, up from yesterday's close of $0.5555.

The Canadian dollar is also gaining value on the U.S. currency today, with the U.S. dollar trading at C$1.4946, down from a close yesterday of C$1.4982.