Ye Xie and Bo Nielsen
BLOOMBERG NEWS 
Monday, September 22, 2008
Sept. 22 (Bloomberg) — The dollar weakened the most against the euro since January 2001 and fell versus the yen on concern a U.S. proposal to buy $700 billion of troubled assets from financial firms will deepen the budget deficit.
The greenback weakened for a fourth day as Treasury Secretary Henry Paulson’s plan to bail out banks from the credit crunch failed to restore investor confidence in U.S. assets. Stocks and bonds fell, and oil prices surged.
“The massive increase in the deficit is starting to make people rethink the shape of all sorts of things, including the dollar,” said Alan Ruskin, head of international currency strategy for North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut.
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The dollar fell 2.2 percent to $1.4789 per euro at 1:33 p.m. in New York, from $1.4466 on Sept. 19. It touched $1.4797, the weakest level since Aug. 28. The dollar may slide to $1.50 in the next several weeks, according to Ruskin. The dollar dropped 1.7 percent to 105.68 yen, from 107.45. The euro increased 0.6 percent to 156.31 yen, from 155.46.
The U.S. currency has lost more than 5 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 on July 15, the weakest level since the European currency’s 1999 debut.
Paulson and Federal Reserve Chairman Ben S. Bernanke began plotting the rescue last week after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc., and Merrill Lynch & Co. was forced into the arms of Bank of America Corp. Paulson and Bernanke are due to testify before the Senate tomorrow on the banking crisis.
The bailout plan, sent to Congress Sept. 20, would mark unprecedented government participation in markets and increase the nation’s debt ceiling by 6.6 percent to $11.315 trillion. Officials may also provide $400 billion of guarantees for money- market funds.
The dollar will get “crushed,” as the extra spending reduces the allure of U.S. assets to foreign investors, said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world’s biggest currency hedge-fund firm, which manages about $15 billion.
The yen rose 1 percent to 73.30 versus the New Zealand dollar and 59.31 against the Brazilian real on reduced demand for carry trades, in which traders get funds in a country with low borrowing costs and invest where returns are higher. The Bank of Japan’s target lending rate of 0.5 percent compares with 4.25 percent in Europe, 7.5 percent in New Zealand and 13.75 percent in Brazil.