The euro fell the most against the dollar since the introduction of the
shared currency in 1999 after France and Belgium led a state-backed
rescue of Dexia SA, as the widening financial crisis forces governments
to prop up financial institutions across Europe.
The 15-nation currency also weakened against the British pound after
Belgian Prime Minister Yves Leterme said Dexia, the world's biggest
lender to local governments, will receive about $9.2 billion to shore
up its capital. The dollar rose against the yen on speculation the U.S.
Senate will salvage a $700 billion bank-bailout plan as early as
tomorrow after Congress rejected it yesterday.
``The consensus is the U.S. banking system is a little bit further
along in its exposure of its toxic assets,'' said Firas Askari, head
currency trader at BMO Nesbitt Burns in Toronto. ``It's a case of which
is relatively worse. The dollar's going to benefit against the euro
because Europe has more to expose.''
The capital infusion for Dexia comes two days after Belgium, the
Netherlands and Luxembourg rescued Fortis, the largest Belgian
financial-services company, Britain took control of Bradford &
Bingley Plc, the country's biggest lender to landlords, and Germany
bailed out Hypo Real Estate Holding AG.
``There's a dollar shortage globally,'' said Alan Ruskin, head of
international currency strategy in North America at RBS Greenwich
Capital Markets Inc. in Greenwich, Connecticut. ``Demand for liquidity
trumps the fundamentals. Fundamentally, the U.S. is awful, and Europe
is awful. Fundamentals are irrelevant today.''
``There is a mad scramble for U.S. dollar funding demand from a global
U.S. dollar-based financial system,'' said Claudio Piron,
Singapore-based head of Asian currency research at JPMorgan Chase &
Co, the second-biggest U.S. bank by market value. ``Central banks have
been extending swap lines as lenders of the last resort. The banks
access this liquidity, but they hoard it for themselves as they believe
it too risky to lend to anyone else.''
The U.S. Senate will try to revive a $700 billion financial-rescue
package after yesterday's defeat in the House of Representatives. The
bill would have allowed the government to buy troubled assets from
banks. Institutions posted $590 billion of losses and writedowns since
the start of last year following the collapse of the U.S.
subprime-mortgage market.
The U.S. dollar has rebounded in the last quarter, gaining 9.4%. The
dollar is up against all of the world's major currencies, with the
exception of the Japanese yen, which is flat this quarter against the
dollar. The dollar is up the most against the Brazilian Real (+17.4%)
Australian dollar (+17.5%), Norwegian Krone (+13.7%) and Swedish krona
(+13.2%). The dollar is up 10.6% against both the euro and British
pound. The strength in the dollar helps keep commodity prices in
check, but may hinder U.S. exports.