Dollar gains as Senate preps bailout vote
Written on October 3, 2008
The dollar continued its three-day run against the 15-nation euro Wednesday as banks continued to operate in defensive mode, and the Senate prepared to vote on its own version of the $700 billion financial sector rescue package that failed to pass the House of Representatives on Monday.
The dollar rose against the euro, which fell to about $1.4011 from $1.4094 late Tuesday.
Weakening euro: The euro had been weakened by a slew of government takeovers and bailouts earlier this week in Europe. Governments rushed in to provide funding for a slew of financial institutions from Glitnir bank in Iceland to Fortis bank in Belgium.
"In other words, the crisis has gone global and that has weighed on sentiment toward the euro," said Stephen Malyon, currency strategist with Scotia Capital in Toronto.
The euro regained some ground against the dollar Wednesday after a report showed that U.S. manufacturing had slowed more than expected in August, and a second report showed an increase in retail sales in Germany, the euro-zone’s largest economy.
But global attention turned to a planned Senate vote on the government’s bailout of the U.S. financial system and euro gains receded.
Lending tight: The dollar has been steadily rising in price as banks continue to keep a tight hold on their cash reserves, making interbank lending more difficult.
"There’s an absence of supply because banks are hoarding what dollars they have," said Malyon (no fax payday loan).
The "TED spread," an indicator of how willing banks were to lend to one another, showed interbank loan prices on the rise.
The TED spread measures the difference between three-month London interbank offered rate, or "Libor," a measurement of the rate banks charge each other to borrow for three months, and what the Treasury pays for three months http://payday-badcredit.com. The higher the spread, the bigger the aversion to risk.
The spread fell to 3.31% on Wednesday after hitting its highest level in more than 25 years, according to Bloomberg.com. On Sept. 5, the TED spread was only 1.04%.
Bailout redux: On Monday the House rejected a bill designed to boost bank confidence and get the cash flowing again by buying up many of the severely underpriced assets that have been weighing on financial institutions.
The decision sent the Dow Jones industrial average down a record 778 points, but the dollar saw gains as commodities such as oil, which are traded in dollars, followed stocks.
Stocks ended the day down slightly as the Senate prepared to vote on its own version of the bill Wednesday evening.
U.S. currency also gained against the British pound Wednesday, which fell to $1.7705 from $1.7794 a day before, and the dollar dropped to ¥106.05 from ¥106.21.
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