MW: U.S. dollar falls vs. most rivals, but gains vs. yen
By William L. Watts & Polya Lesova, MarketWatch
NEW YORK (MarketWatch) -- The U.S. dollar fell against most major currencies, but rose against the Japanese yen, as progress toward a $15-billion federal bailout for the nation's auto industry buoyed risk appetite among investors.
Congressional Democrats and the Bush administration reached an agreement in principle on a bailout plan late Tuesday. Line-by-line drafting of the proposed legislation continued late Tuesday night, The Wall Street Journal reported, citing an unnamed senior administration official and congressional aides. See full story.
According to the Journal, billions in short-term loans for the industry will be accompanied by a substantial government ownership stake and a direct role in the industry's restructuring, creating one of the most far-reaching government interventions in decades.
On Wall Street, U.S. stocks opened higher, lifted by reports of progress on a bailout of the U.S. auto industry.
The rise in risk appetite is seen as a negative for the greenback, which, along with the Japanese yen, has traded closely in line with rising and falling levels of risk aversion in recent months.
"The yen continues to have the last word as foreign-exchange desks remain reluctant in selling the risk-driven currency in a treacherously thin trading environment," said Ashraf Laidi, chief market strategist at CMC Markets.
"Note how despite the gains in higher yielding currencies such as the Australian dollar, New Zealand dollar and British pound, these moves are largely emerging at the expense of the U.S. dollar rather than the Japanese yen," Laidi said.
The dollar index , a measure of the greenback against a trade-weighted basket of six currencies, fell 0.4% to 85.50 in recent trade.
The euro rose 0.6% against the dollar to $1.2993, while the British pound was up 0.4% at $1.4815.
The dollar, however, rose 0.4% against the Japanese currency to 92.65 yen.
In the commodity markets Wednesday, oil and gold futures posted strong gains. See Futures Movers.
Italian GDP contracts
Earlier Wednesday, Italy's statistical agency reported the nation's economy had deteriorated more sharply than originally estimated in the third quarter.
Istat said Italian GDP shrank 0.5% in the third quarter, the largest fall since 1998. That follows a 0.4% drop in the second quarter. A recession is commonly defined as at least two consecutive quarters of shrinking GDP.
"The euro's quiet comeback remains underway, as the currency builds gradual but modest gains when the onus of negative data is released from the U.K. and the U.S.," Laidi said.
"Although the euro zone continues to see its share of recession-like figures, it has been largely devoid of shocking data as those seen in the U.S. or U.K.," he said, referring to Italy's GDP data.
Marco Valli, chief Italian economist at UniCredit MIB in Milan, said that the downturn for the euro zone's third largest economy is expected only to intensify in the fourth quarter given a run of dismal industrial production data and activity surveys, leaving potential for a 1% quarterly fall in the October-December period.
