BLBG: Dollar Drops as Fed Commits Up to $800 Billion to Thaw Credit
By Ye Xie
Nov. 25 (Bloomberg) -- The dollar fell for a third day versus the euro as the Federal Reserve committed up to $800 billion to thaw credit for homebuyers, consumers and small businesses, reducing demand for the safety of U.S. assets.
“The Fed and the Treasury are trying to put a floor under risk appetite,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “The euro-dollar should show upward bias.”
The dollar dropped 0.5 percent to $1.3024 at 9:02 a.m. in New York, from $1.2953 yesterday. The yen advanced 1.4 percent to 96.04 per dollar from 97.34. The yen increased 0.8 percent to 125.09 per euro from 126.08.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
“It’s not great news for the dollar, which is an anti-risk currency,” said Dustin Reid, a senior currency strategist at ABN Amro Bank NV in Chicago.
The Organization for Economic Cooperation and Development cut its forecast for global growth in 2009. The economy of the organization’s 30 members will contract 0.4 percent next year, after expanding 1.4 percent this year. Earlier this month, it had predicted a 0.3 percent contraction.
Shrinking Economy
Gross domestic product in the U.S. shrank at a 0.5 percent annual rate from July to September, more than the government’s earlier estimate of a 0.3 percent contraction, the Commerce Department said in Washington. The decrease matched the median forecast of 71 economists surveyed by Bloomberg News.
“The world is still in an ugly place and the general macroeconomic picture facing all economies is pretty grim,” said Paul Robinson, a currency strategist in London at Barclays Capital and a former Bank of England economist. “The yen will gather support with slow growth.”
The Conference Board’s consumer confidence index remained at 38 in November, matching the October reading that was the lowest since monthly records began in 1967, a separate Bloomberg survey showed. The report is due at 10 a.m. in New York.
Citigroup has received a U.S. government rescue package that shields the bank from losses on $306 billion of toxic assets and injects $20 billion of capital. President-elect Barack Obama warned yesterday in Chicago that the U.S. may lose “millions of jobs” next year and vowed to push for a stimulus package without specifying the cost. Financial institutions around the world are facing $968 billion in losses on securities tied to home mortgages.
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
