Tuesday July 8, 2008 - 23:29:00 GMT
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Reuters - www.reuters.com
FOREX NEWS-Bernanke comments, oil price slide boost dollar
(Recasts; updates prices, changes byline)
* Dollar up on Bernanke's comments, oil prices slide
* Bernanke says may keep Fed's emergency lending open
* U.S. stocks rally on oil retreat, boosting dollar
By Lucia Mutikani
NEW YORK, July 8 (Reuters) - The dollar rose on Tuesday as
the Federal Reserve's willingness to keep its emergency lending
facility open into 2009 for some Wall Street firms calmed fresh
credit concerns and encouraged investors to snap up U.S.
A sharp drop in New York crude oil futures, as well as
comments by a top Fed policy-maker that it made "eminent sense"
to raise U.S. interest rates as risks to the world's largest
economy ebbed, also supported the greenback, analysts said.
"Bernanke's comments should take some pressure off from the
financially strapped Wall Street, they helped stocks early on.
The lower oil price is the other part of the story helping the
dollar," said Paresh Upadhyaya, portfolio manager at Putnam
Investments in Boston.
Bernanke's remarks came on the heels of renewed credit
worries sparked by a Lehman Brothers report that an accounting
change could force Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz)
to raise a combined $75 billion in capital.
Fannie Mae and Freddie Mac are the largest providers of
funding for U.S. home mortgages. But the Office of Federal
Housing Enterprise Oversight, their federal regulator, said on
Tuesday the proposed accounting change should not spur capital
changes at the two government-sponsored agencies.
The New York Board of Trade's dollar index .DXY, which
charts the dollar's performance against a basket of six
currencies, rose to a session peak of 73.082.
The euro fell as low as $1.5636 <EUR=>, according to
Reuters data and was last trading at $1.5650, down 0.5
LOWER OIL PRICES BOOST
"The dollar's gains are primarily on the back of
stabilization in the stock markets and also on much lower oil
price, but we are not seeing a tremendous improvement in the
dollar versus euro," said Andrew Busch, global foreign exchange
strategist at BMO Capital Markets in Chicago.
"Some of the risk taking that was taken out on concerns
over Freddie Mae and Fannie Mae, i.e., buying of yen and of
Swiss franc against other currencies has gone away."
The dollar rose 0.3 percent to 107.45 yen <JPY=>, recording
its fourth day of gains versus the Japanese currency. Against
the Swiss franc, the dollar gained 0.8 percent to 1.0343 francs
<CHF=>, while sterling slid 0.3 percent to $1.9686 <GBP=>.
Those gains were driven by the surge in U.S. stocks, where
key indices climbed by more than one percent.
Bernanke said the Fed was considering several options,
including extending the duration of the central bank's
facilities for primary dealers beyond the end of the year
should the current unusual circumstances persist in the dealer
funding markets. For details, see [ID:nN08487125]
Markets expectations of tighter U.S. monetary policy by
year-end were boosted by Federal Reserve Bank of Richmond
President Jeffrey Lacker's comments that withdrawing some of
the stimulus as risks to the economy diminished made eminent
"He is implying the need to hike (rates) eventually to be
on top of those inflation pressures. I will discount some of
his comments because he is a not a voting member, but there was
a reaction in the currency," said Upadhyaya.
Interest rate futures have fully priced in a 25 basis point
hike in the fed funds rate by year-end. The benchmark overnight
lending rate is currently at 2.00 percent after it was slashed
by 3.25 percentage points since September.
Data on Tuesday showing a steep drop in the U.S. pending
home sales index for May had only a brief but negative impact
on the dollar, suggesting that the housing market is still far
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
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