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Dollar Falls as Bush Talks of Recession, Traders Bet on Fed Cut

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Bo Nielsen and Ron Harui
Thursday, Sept 25, 2008

The dollar snapped two days of gains against the euro after President George W. Bush said the U.S. may face a “painful” recession and as traders bet on a Federal Reserve interest-rate cut next month.

The dollar also weakened versus the Swiss franc before a U.S. government report today that may show home sales dropped in August, extending the worst housing slump in 17 years. The British pound rose against the U.S. currency after policy maker Andrew Sentance said the Bank of England must temper its response to the credit crisis and stick to its inflation focus.

“The prospects of loose fiscal and monetary conditions in a economy that’s slowing rapidly is hitting the dollar, said Simon Derrick, chief currency strategist in London at Bank of New York Mellon Corp. “The bailout package may restore confidence in a lot of things but it won’t restore confidence in the dollar.”

(Article continues below)

The dollar fell to $1.4718 per euro as of 8:46 a.m. in London, from $1.4621 yesterday. The currency declined to 105.70 yen from 106.11. The euro was at 155.62 yen from 155.15. The U.S. currency dropped to $1.8608 against the pound from $1.8465, and to 1.0815 versus the franc from 1.0916.

Futures contracts on the Chicago Board of Trade showed 80 percent odds the Fed will cut borrowing costs in October as Congress mulls a $700 billion proposal to bail out the banking system. That compares with 58 percent odds on Sept. 23.

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This article was posted: Thursday, September 25, 2008 at 3:52 am

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