Ye Xie and Bo Nielsen
Tuesday, July 22, 2008
The dollar rose the most against the euro in more than two weeks as Treasury Secretary Henry Paulson voiced support for the currency and the Federal Reserve Bank of Philadelphia president said interest rates should be raised.
The greenback extended its gain after breaking $1.59, where orders to sell the euro were clustered, and increased further as crude oil prices fell, traders said. Mexico’s peso touched a five-year high as economists predicted central bank policy makers will raise borrowing costs next month to curb the highest inflation in more than three years.
“There’s growing opinion that the dollar is trying to bottom,” said Jeff Gladstein, global head of foreign-exchange trading at AIG Financial Products in Wilton, Connecticut. “There’s a coordinated effort trying to prop up the dollar. The Fed is very concerned about inflation.”
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The dollar increased 0.9 percent to $1.5777 per euro at 2:11 p.m. in New York, from $1.5922 yesterday. It touched $1.5758, the strongest since July 10. The dollar advanced 0.8 percent to 107.28 yen, from 106.45, and reached 107.45, the strongest since July 9. The yen dropped 0.1 percent to 169.26 per euro, from 169.48. It fell to a record of 169.91 yesterday.
The Mexican peso increased as much as 0.3 percent to 10.0988 versus the dollar, the strongest since May 2003. Banco de Mexico policy makers will raise the target lending rate by a quarter-percentage point to 8.25 percent at their next meeting Aug. 15, according to the median estimate of 23 analysts in a survey by Citigroup Inc.
The dollar strengthened today as Paulson said in a speech in New York that he’s “confident” that lawmakers will pass the bill to “boost confidence” in Fannie Mae and Freddie Mac, the largest sources of U.S. mortgage financing. He reiterated that a strong dollar is “really very important.”
The U.S. currency touched the record low earlier this month on concern Fannie and Freddie, which own or guarantee almost half of the $12 trillion in U.S. home loans outstanding, may fail to survive the housing slump.
“His comments helped the market get over the mass hysteria about Fannie and Freddie,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey.
Philadelphia Fed President Charles Plosser said in a speech today in King of Prussia, Pennsylvania, that the U.S. central bank should raise interest rates “sooner rather than later.” He argued against reductions in two Fed decisions this year.
The two-year Treasury note yield rose 10 basis points, or 0.10 percentage point, to 2.69 percent. It was 190 basis points lower than that of the comparable-maturity German bund, narrowing from 203 basis points yesterday.
“Plosser’s hawkish comments pushed Treasury yields higher,” contributing to the dollar’s turnaround, said Matthew Kassel, director of proprietary trading at ING Financial Markets LLC in New York.
This article was posted: Tuesday, July 22, 2008 at 11:45 am