The U.S. economy shows signs of recovery, but investors remain wary about overseas markets.
NEW YORK (CNNMoney.com) -- The dollar gained against the euro Monday as the frozen credit market showed signs of thawing, but investors remained concerned that overseas economies will be slower to recover than the United States.
The dollar gained 0.52 cents against the euro, which fell to $1.3314 from $1.337 late Friday. The dollar also rose 0.51 cents against the British pound, which fell to $1.7129 from $1.7207, but fell ¥0.03 against the Japanese yen, falling to ¥101.56 from ¥101.59.
The interbank cost of borrowing U.S. dollars fell dramatically Monday as the overnight Libor rate fell to 1.51% from 1.67% on Friday, according to Bloomberg.com. Libor is the daily average of what 16 banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages.
The overnight Libor was edging closer to the 1.5% rate the Federal Reserve charges banks to borrow. Just two weeks ago the overnight Libor had reached as high as 6.88% after the Treasury's $700 billion bailout bill was signed into law on Oct. 3.
Global crisis: The dollar had been down against the euro earlier in the day after the Netherlands announced a $13.4 billion bailout of Dutch banking giant ING (ING) on Sunday. The Friday before, ING said it expected to post a third-quarter loss of €500 million, or about $673 million.
The Dutch bailout is the latest non-U.S. government action to restore confidence to the banking sector as the economic slowdown expands overseas. South Korea also announced a plan this weekend to guarantee up to $100 billion in foreign currency loans and inject $30 billion into its banking sector.
In the U.S., Federal Reserve chairman Ben Bernanke said Monday that Congress could consider a second stimulus package, although he did not indicate what should be included. Earlier this year, Congress approved a stimulus plan that sent nearly $100 billion to most tax filers in the form of payments of at least $600, or $1,200 for joint filers. Other tax break for businesses brought the cost of the entire package to close to $170 billion.
"One of the things that everyone agrees is that the global economy is slowing down," said Antonio Sousa, chief strategist with DailyFX.com. "The world economy (is) slowing down even faster than the U.S."
As trouble began brewing in the U.S. subprime mortgage market, the Federal Reserve was the first national bank to respond by cutting its interbank lending rate.
Now that the economic crisis is in full swing, cheaper, and thus more easily obtainable, currencies such as the U.S. dollar and the Japanese yen, are in a better position to recover later on down the road, according to Sousa.
As the world economy slows, investors are shifting their investments from export-dependent currencies, such as the Australian and New Zealand dollars, to the U.S. dollar and yen, which are cheaper than the euro, he said.
Oil: Falling oil prices have also contributed to dollar's rise.
Crude oil futures have fallen from a record high of $147.27 a barrel in mid-July, which helped bring gasoline prices to a national average of $2.92 a gallon on Monday, according to motorist group AAA.
Commodities such as oil are traded in U.S. dollars, so a decline in the value of oil makes the dollars themselves a much more attractive investment.
The cut in oil prices also "should probably alleviate some pressure on the U.S. economy," said Sousa. The U.S. is the world's largest oil consumer. That will likely help the dollar in the long-term, he added.
