The dollar headed for its biggest weekly gain
ever against the euro on a surge in demand for U.S. currency funding
amid a worldwide credit crunch.
The greenback advanced versus the yen on speculation the U.S. House of
Representatives will approve a $700 billion financial bailout after
rejecting the plan Sept. 29. The government's payroll report showed the
U.S. lost the most jobs in five years last month.
``Very strong demand for dollars is still evident,'' said Marc
Chandler, global head of currency strategy at Brown Brothers Harriman
& Co. in New York. Traders waited until after the payroll data to
buy dollars against the euro because they wanted to ``clear the event
risk,'' he said.
The London interbank offered rate, or Libor, that banks charge each
other for three-month loans in dollars increased to 4.33 percent, the
most since January, the British Bankers' Association said. The
Libor-OIS spread, a gauge of cash scarcity among banks, widened to a
record.
By a vote of 223-205, the U.S. House prevented members from offering
amendments that could snarl passage of the bailout. The tally signaled
the plan has enough support to clear Congress and be sent to President
George W. Bush to be signed into law.
At least 12 House members said they will drop their opposition to the
plan and support it. The measure failed by a dozen votes earlier this
week. The Senate voted 74-25 on Oct. 1 in favor of legislation that
links the rescue to an increase in bank-deposit insurance limits and
tax breaks.
``The scarcity of the dollar in the market is keeping it supported,''
said Samarjit Shankar, director of strategy for the global markets
group in Boston at Bank of New York Mellon, the world's largest
custodial bank, with more than $23 trillion in assets under
administration. ``The bailout plan could take the dollar further up.''
The dollar also benefited from a ``relief rally'' today, according to
Andrew Busch, a currency strategist at BMO Capital Markets in Chicago.
He said the payroll data was not as bad as some people thought after
last month's bankruptcy of Lehman Brothers Holdings Inc. sent the
financial market into turmoil.
U.S. payrolls shrank by 159,000 last month, following a revised decline
of 73,000 in August, the Labor Department said today in Washington.
It's the biggest loss since 2003. The jobless rate stayed at 6.1
percent.
``It's not doing any good for money markets and liquidity given the
real economy is starting to freeze up,'' said Alan Ruskin, head of
international currency strategy in North America at RBS Greenwich
Capital Markets Inc. in Greenwich, Connecticut. ``The market is short
of dollar liquidity, so the dollar remains bid.''
The euro was headed for a record weekly drop against the dollar after
European Central Bank President Jean-Claude Trichet said yesterday
policy makers discussed cutting the main refinancing rate. European
economies face ``increasing downside risks,'' he said at a press
conference following the decision to keep the benchmark at a seven-year
high of 4.25 percent.
Five European banks including Dexia SA, the world's biggest lender to
local governments, and Fortis, Belgium's largest financial-services
firm, accepted government-backed bailouts this week.
Futures on the Chicago Board of Trade showed an 84 percent chance that
the Federal Reserve will cut the 2 percent target lending rate for
overnight lending between banks by a half- percentage point at its Oct.
29 meeting, with the balance of bets on a reduction of 0.75 percentage
point. Futures showed no chance of lower borrowing costs a month ago.