The
dollar rose to a four-week high against the yen and advanced versus the
euro as a U.S. government rescue of Fannie Mae and Freddie Mac moved
closer to congressional passage and oil prices fell.
The
currency also gained as signs of stability in the financial industry
fueled bets that the Federal Reserve will raise interest rates in
September. The yen touched a record low against the euro as reduced
currency and stock volatility encouraged investors to add to holdings
of higher-yielding assets funded in Japan.
``The
government's backstop for Fannie and Freddie is containing systemic
risk,'' said Richard Franulovich, a senior currency strategist at
Westpac Banking Corp. in New York. ``It created a blue sky for the
financial markets and gave a boost to the dollar.''
Futures
traded on the Chicago Board of Trade showed a 55 percent chance the Fed
will increase its 2 percent target rate for overnight lending between
banks by at least a quarter- percentage point by Sept. 16, up from 49
percent odds yesterday. Policy makers next meet Aug. 5.
The
euro extended its decline versus the dollar as a report showed
industrial orders in the euro region fell in May more than twice as
much as forecast. Orders dropped 3.5 percent from April, the European
Union statistics office in Luxembourg said today, compared with a 1.3
percent decline predicted by economists.
Crude oil for
September delivery fell for a second day, declining 1.4 percent to
$126.18 a barrel. It has dropped 15 percent from a record $147.27 a
barrel reached July 11. The euro-dollar exchange rate and oil have
moved in the same direction 90 percent of the time during the past
year, according to Bloomberg calculations based on the correlation of
their value changes.
FED: Beige book prepared for Aug 5-6 FOMC
"Pace
of econ activity slowed somewhat since the last report"; 5 Eastern
Dists noted weakening, Chi said it was sluggish, and KC said it
moderated. Consumer was sluggish, mfg declined though exports remained
high. There was further credit tightening and mixed demand in services.
Price pressures were elevated or increasing due to imports, esp oil.
Wage pressures are limited. Most dists said labor mkts were unch to
slightly weaker. Book was compiled by KC Fed based on data gathered
on/before July 14. May's book said "economic activity remained
generally weak" so the latest represents a worsening.