Dollar slips as investors weigh fiscal impact of U.S. rescue plan.(It's starting to sink in?)
By William L. Watts & Lisa Twaronite, MarketWatch
Last Update: 9/19/2008 2:13:00 PM
SAN FRANCISCO (MarketWatch) -- The dollar slipped against most major rivals
Friday, erasing sharp earlier gains, as investors pondered the possibly negative
aspects of a nascent U.S. government plan to take on the toxic assets plaguing
the financial sector.
News of the rescue plan had boosted the dollar in late North American trading
Thursday. Gains were extended in Asia and European action. The dollar index
(DXY), a measure of the greenback against a trade-weighted basket of six major
currencies, rose as high as 79.209, but was last trading at 77.840, down from
78.327 in late North American trading Thursday.
The euro was buying $1.4417, up sharply from its session low of $1.4150 and from
$1.4302 late Thursday. The British pound changed hands at $1.8358, up from a
session low of $1.7916, and from $1.8136 Thursday.
The dollar extended gains against the yen in line with rising risk appetite,
rising to 107.11 yen from 105.21 yen late Thursday. But it remained off its
Friday high of 108.00.
The Bush administration and congressional leaders have neared agreement on the
outline of a plan that would see the formation of a new government entity that
would take bad assets off the balance sheets of financial firms. Read about the
plan.
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But the massive size of the bailout will likely have a negative impact on the
U.S. fiscal position and even raises fears of an eventual U.S. sovereign
downgrade, wrote currency analysts at Action Economics.
"The dollar has moved to or near intra day lows versus virtually all major
currencies, as the foreign exchange market is apparently taking a bigger picture
look at the greenback," they said.
"Perhaps it is too early to speculate on the broader impact of a bailout, but at
this point, it looks as though the foreign exchange market's sentiment toward the
greenback has soured significantly in the past several hours," they added.
Wall Street welcomed news of the plan, with major indexes surging in afternoon
trading. See Market Snapshot.
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Degree of caution
Details of the proposal are due to be hashed out this weekend, and there's
potential for the plan to prove a disappointment, as well as uncertainty over
whether measures can be implemented in a timely manner as Congress prepares to
recess ahead of the November elections, said Neil Mellor, currency strategist at
Bank of New York Mellon.
Earlier Friday, a decision by regulators to shield bank shares from short sellers
spawned a rise in risk appetite, knocking down the Japanese yen and lifting the
U.S. dollar to its session high.
Battered financial stocks rebounded with a vengeance, pushing Asian and European
indexes sharply higher. See Asia Markets.
Click for DetailSee
Europe Markets.
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