The euro rose the most in three weeks against
the dollar and yen after European leaders agreed to guarantee bank
borrowing and prevent failures that would further batter the credit
markets.
The U.S. currency fell versus the Mexican peso and Australian dollar as
the Federal Reserve and three other central banks announced unlimited
dollar auctions, reducing demand for the greenback for funding among
financial firms. Brazil's real, South Korea's won and the peso led a
rally in emerging-market currencies as the Group of Seven nations
pledged over the weekend to take ``all necessary steps'' to stem the
market turmoil.
``It helps restore market confidence and avert further financial
meltdown,'' said Brian Kim, a currency strategist at UBS AG in
Stamford, Connecticut. ``It's positive for risky assets. If financial
institutions stabilize, there's less of a flight toward the dollar.''
Foreign-exchange movements may be exaggerated because trading volumes
are lower than normal due to public holidays in Japan, the U.S. and
Canada, according to Takashi Yamamoto, chief trader at Mitsubishi UFJ
Trust & Banking Corp. in Singapore.
The pound rose for the first time in four days, gaining 2.2 percent to
$1.7423, as the U.K. government said it will invest in banks. Royal
Bank of Scotland Group Plc, HBOS Plc, and Lloyds TSB Group will get 37
billion pounds ($64.4 billion), the government said in a Regulatory
News Service statement. The funding will allow the banks to boost their
so-called Tier One capital ratio to more than 9 percent.
European policy makers meeting in Paris yesterday pledged to guarantee
until the end of 2009 bank-debt issues with maturities up to five
years. Plans to recapitalize banks in the region will cost 300 billion
euros ($409.7 billion), according to Goldman Sachs Group Inc.
``The rebound in the euro, and in sterling, is a direct response to the
clarity of bailout plans in the euro zone and the U.K.,'' said Simon
Derrick, head of currency strategy in London at Bank of New York Mellon
Corp. ``In the medium-term, this means a surge in national debt which
won't bode well for these currencies. In the near-term, the plans give
investors confidence that there won't be further banking failures.''