The dollar dropped to a one-week low against the euro as Treasury
Secretary Henry Paulson said in prepared congressional testimony that
financial markets will take ``additional time'' to stabilize.
The currency fell for a second day after Fannie Mae and Freddie Mac,
the two biggest providers of financing for U.S. home loans, tumbled in
New York trading. The pound dropped versus the dollar as the Bank of
England dismissed calls to cut its main interest rate, raising the risk
of a recession.
``I don't think there's anything that Paulson has said that has
instilled any great degree of comfort,'' said Alan Ruskin, head of
international currency strategy at RBS Greenwich Capital Markets in
Greenwich, Connecticut. ``Comments that financial turmoil is ongoing
are words that don't play well to anyone holding long-dollar
positions.''
Paulson said in his testimony that regulators need ``additional
emergency authority'' to help ailing firms, along with a resolution
process similar to the one already in place for commercial bank
failures. Federal Reserve Chairman Ben S. Bernanke testified that more
regulation over securities firms is needed as financial turmoil
persists.
``The heightened state of uncertainty is putting the dollar on the
defensive,'' said Carl Forcheski, vice president on the corporate
currency sales desk at Societe Generale SA in New York. ``The
overhanging concern about the financial sector is dogging the market
here.''
Futures contracts on the Chicago Board of Trade show 86 percent odds
that policy makers will keep borrowing costs unchanged at 2 percent
next month.
The euro dropped earlier against the dollar after reports showed French
and Italian industrial production dropped in May more than analysts
forecast, raising concern European economic growth is slowing.