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Dollar up vs euro, focus on European leaders meeting
October 3, 2008 / 1:00 AM / 9 years ago

Dollar up vs euro, focus on European leaders meeting

NEW YORK (Reuters) - The U.S. dollar rose versus the euro on Friday as the approval of a $700 billion rescue package by Congress for the U.S. financial sector left investors fretting that Europe might not have adequate measures to deal the credit crisis.

<p>An employee of Korea Exchange Bank counts 100-dollar bills at the bank's headquarters in Seoul September 3, 2008. REUTERS/Jo Yong-Hak</p>

The euro saw its worst weekly percentage loss since its introduction in 1999, while the dollar was on track for its best weekly gain versus major currencies in 16 years, according to Reuters data.

The U.S. House of Representatives voted 263-171 to pass the bailout plan, after the U.S. Senate approved it on Thursday night, and President George W Bush promptly signed it.

The measure will allow the U.S. Treasury to buy illiquid mortgage assets from banks and hopefully allow credit to flow again/

The dollar initially slipped against the euro after the House passed the bill as traders who had bet on Congressional approval took profits.

“Pretty much everybody was betting that the bill would be passed and when the bill did pass and you got no more improvement in the dollar and the natural reaction was to take profits,” said Joseph Trevisani, chief market analyst at FX Solutions in Saddle River, New Jersey.

“Now we have a different scenario. We don’t really know if the bill is going to improve the U.S. credit markets, but we do know that something is being done. What we do know as well is that nothing is being done in Europe and the more people focus on that, the more pressure you are going to see on the euro.”

However, French President Nicholas Sarkozy is due to meet the leaders of Germany, Italy and Britain, as well as senior EU officials and European Central Bank President Jean-Claude Trichet on Saturday to try to find a common European approach to the international banking crisis.

In late New York trade, the ICE Futures U.S. dollar index, was flat at 80.532 .DXY, after earlier touching a 13-month peak of 80.933.

The index, which tracks the dollar’s value against a basket of six currencies, retained the bulk of gains chalked up this week and was on track for its best weekly rise since October 1992 at current prices, according to Reuters data.

The euro was down 0.3 percent at $1.3779, after plumbing a 13-month trough of around $1.3704 on Thursday.

JOBS REPORT IGNORED

Investors largely shrugged off a report showing that U.S. employers cut payrolls at the steepest rate in 5-1/2 years last month, cutting an unexpectedly large 159,000 nonfarm jobs as employment contracted for a ninth straight month.

Analysts said the report and continued steep fall of stocks on Wall Street raised the chances of a Federal Reserve interest rate cut by the end of the year.

“I think we will get a rate cut. It looks like the stock market is going to try and force the Fed’s hand into this,” said Ashraf Laidi, chief FX strategist at CMC Markets in New York.

Stocks on Wall Street ended down as investors worried that the rescue package might not prevent a recession in the United States, causing the dollar to surrender earlier gains versus the yen.

The dollar was last down 0.1 percent at 105.25 yen, after rising to a session peak of 106.14. Against the yen, the euro was down 0.3 at 145.05 yen, well above a more than two-year trough of around 144.03 yen touched earlier in the session.

The dollar has surged this week as the international nature of the financial market crisis was highlighted by the rescue of some major European lenders, including the Belgian-Dutch financial services firm Fortis FOR.BRFOR.AS, this week.

That deteriorating financial backdrop prompted the ECB, which left rates unchanged at 4.25 percent on Thursday, to signal its first rate cut in more than five years.

ECB President Jean-Claude Trichet said on Thursday inflation risks have eased as financial market turbulence hit the euro zone.

Additonal reporting by Nick Olivari

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