Tuesday, September 23, 2008

Dollar Falls Versus Euro Amid Delay in U.S. Bailout Proposal

Dollar Falls Versus Euro Amid Delay in U.S. Bailout Proposal

By Stanley White and Ye Xie
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Sept. 24 (Bloomberg) -- The dollar fell against the euro on bets U.S. congressional scrutiny will delay passage of the government's $700 billion rescue plan for financial institutions.

The dollar also declined against the British pound after Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said yesterday failure to pass the bailout would threaten the U.S. economy as lawmakers balked at rubber-stamping the plan. The Australian and New Zealand dollars slumped as prices dropped for commodities the two countries export.

``The dollar will face a lot of pressure to go lower,'' said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. ``Uncertainty about when the U.S. rescue package will pass and how much of a burden it will place on future generations is damaging confidence in the dollar.''

The dollar slid to $1.4683 per euro at 7:54 a.m. in Tokyo from $1.4648 late yesterday in New York. It was at 105.76 yen from 105.56 yen. Against the pound, the dollar traded at $1.8552 from $1.8522. The euro bought 155.31 yen from 154.63 yen. The dollar may decline to $1.4710 per euro today, Soma forecast.

The Australian dollar fell to 83.07 U.S. cents from 84.40 cents late in Asia yesterday. New Zealand's dollar weakened 1.5 percent to 67.97 U.S. cents.

Gold, Australia's third most-valuable raw material export, fell below $900 an ounce in New York yesterday. Crude oil, its fourth most-valuable export, also slipped. Raw materials account for 60 percent of Australia's exports and sales of commodities such as lumber make up 70 percent of New Zealand's overseas shipments.

Government Plan

Paulson and Bernanke appeared before the Senate Banking Committee to provide details on the proposed bailout. Under the plan, the government would buy devalued securities from financial institutions that economists estimate would drive government debt above 70 percent of gross domestic product and push the annual budget gap to an all-time high next year.

``The sooner we get a plan in place -- we can worry about the details later -- the sooner we can reduce uncertainty,'' said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.

European Contraction

Gains in the euro may be limited by speculation weakening German business confidence will point to slower growth in the 15 countries that share the currency.

The Ifo institute's business climate index declined to 94.3 from 94.8 in August, according to the median of 41 forecasts in a Bloomberg News survey. That would be the weakest reading since June 2005. Ifo will release the report, based on a survey of 7,000 executives, at 10 a.m. in Munich today.

``Economic data in Europe reminds people there's more weakness coming,'' said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. ``It's going to provide longer-term support for the dollar, but right now all focus is on the bailout plan.''

The U.S. currency has lost almost 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency made its 1999 debut.

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