Monday September 8, 2008 - 22:39:05 GMT
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Reuters - www.reuters.com
FOREX NEWS-U.S. dollar rallies broadly on GSE takeover
* Dollar index trades at one-year highs
* Takeover seen bolstering U.S. financial system
* Yen, Swiss franc slide broadly on renewed risk appetite
(Adds comments, updates prices, changes byline)
By Vivianne Rodrigues
NEW YORK, Sept 8 (Reuters) - The U.S. dollar rallied to a
one-year peak against a basket of currencies on Monday, as the
government's takeover of the country's two biggest mortgage
finance agencies boosted confidence in the U.S. financial
The bailout of the beleaguered Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) and
Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz), which own or guarantee half of the United
States' $12 trillion in outstanding home mortgage debt, also
prompted investors to wade back into risky trades, by buying
higher-yielding currencies and selling the yen.
Overall, analysts viewed the U.S. Treasury move as a
positive step in staving off wider financial and housing market
"The bailout package is going to help bring money and
liquidity back to the U.S. financial system," said Greg
Salvaggio, a vice president for trading at Tempus Consulting in
Washington, D.C. "Today's rally in the dollar is not so much
the result of a bet in U.S. economic fundamentals, but instead
a bet liquidity and trading volumes will get back to normal."
In late afternoon trading, the U.S. dollar index on the ICE
Futures Exchange, which measures the value of the dollar
against a basket of six currencies, traded at one-year highs,
up 1.3 percent on the day at 79.559 .DXY, according to
The euro fell to as low as $1.4055 <EUR=>, the lowest in
about 11 months. It last traded at $1.4104, down 1.1 percent.
The dollar initially fell in the aftermath of the weekend
action as investors took the government's takeover of the
stricken government-sponsored enterprises (GSEs) as an excuse
to buy riskier assets, sending stock markets soaring and the
low-yielding Japanese yen sharply lower.
The greenback last traded up 0.2 percent at 107.94 yen
<JPY=>. The euro was also down against the yen at 152.32
"On balance, the takeover of Fannie and Freddie is a net
positive for the U.S. dollar because it shores up confidence in
the U.S. financial sector," said Omer Esiner, a senior market
analyst, at Ruesch International on Washington.
"Having said that, I don't think the government action
represents a silver bullet for all the problems facing the
housing market and the economy. There are still so many
questions about this bailout."
BUDGET IMPLICATIONS OF BAILOUT
But while the news did much to alleviate concern about
systemic financial market risks, it did little to change
fundamentals that had started to drive the dollar higher prior
to the weekend -- slowing growth in the euro zone and the UK.
Some analysts though have expressed reservations about the
latest U.S. government move and were not ruling out a
correction in the dollar's bullish trend of the past month.
Analysts at Wells Fargo said the potential costs to the
taxpayer could be substantial and unwelcome in an economic
slowdown where the U.S. Treasury has limited scope for fiscal
"We do believe...that the dollar's surge has gotten ahead
of itself and, as significant as today's announcement is, it is
not clear it will provide all the answers to the mortgage
market's difficulties," Wells Fargo said in a research note.
"As initial euphoria gives way to measured sentiment, we
still see potential for a sizable dollar correction in coming
weeks, with the euro gaining towards the high $1.40s."
In the wake of the Fannie and Freddie takeover, U.S.
Treasuries sank and U.S. and European shares rallied.
Sterling reversed earlier gains versus the dollar after UK
manufacturing output prices suggested factory gate inflation
might have peaked. The pound <GBP=> slid to as much as $1.7472,
a fresh two-year low.
The dollar also gained 1.1 percent against the low-yielding
Swiss franc to 1.1309 francs <CHF=>.
(Additional reporting by Gertrude Chavez-Dreyfuss and Lucia
Mutikani; Editing by Richard Satran)
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