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Dollar stays weak near record lows on concerns about health of financial and housing sectors - Jul 15

15 Jul, 2008 @ 11:35 am EST

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The Dollar rose from a near record low against the Euro on Monday after the United States announced an emergency plan to restore confidence in mortgage finance companies Fannie Mae and Freddie Mac.

The US Treasury boosted its direct credit lines to the two shareholder-owned but government-sponsored enterprises and said it would buy their shares if asked, while the Federal Reserve made available its direct lending window to financial firms. The plan helped calm market concerns about the health of the US financial and housing sectors, since the two companies fund half of all US mortgages. Underlining these tensions, federal regulators seized mortgage lender IndyMac Bancorp on Friday, one of the largest banks to fail in US history.

Yesterday, EurUsd was down 0.08% at 1.5890 after slipping to 1.5842. UsdJpy rose 0.08% to 106.21, well off Monday's high of 106.81. GbpUsd rose 0.2% to 1.9949 after hitting 1.9813 low. UsdChf rose 0.1% to 1.0171 after posting 1.0251 high.

Billionaire investor George Soros told Reuters on Monday that government debt accumulation coupled with a U.S. recession leaves the Dollar vulnerable. Analysts said the Dollar's recovery would depend on whether the U.S. initiatives were enough to calm investors' concerns about the financial health of Fannie Mae and Freddie Mac. Russia's central bank said over the weekend it was happy with its holdings of roughly $100 billion of agency bonds, which includes Fannie Mae and Freddie Mac, but other central banks were silent. As of mid-2007, China and Japan were the biggest long-term investors in agency bonds at $376 billion and around $228 billion respectively, according to US Treasury data.

Investors will also be watching to see how the latest developments affect Fed Chairman Ben Bernanke's views on monetary policy and the economic outlook when he testifies before the Senate Banking Committee on Tuesday. Money markets have scaled back their expectations for monetary policy tightening from the Fed and now don't expect it to start hiking until the final months of the year.