Dollar firms against euro after US lifeline for Freddie, Fannie
NEW YORK (AFP) — The dollar firmed slightly against the euro Monday after Washington moved to bolster ailing mortgage finance giants Fannie Mae and Freddie Mac, dealers said.
The European single currency was at 1.5909 dollars around 2100 GMT, down from 1.5932 dollars late Friday.
The dollar slipped to 106.18 yen, down from 106.25 Friday.
A bold US government plan announced Sunday gives the struggling giants that underpin trillions of dollars in home loans access to central bank lending facilities and a temporary increase, pending congressional approval, of their lines of credit from Treasury.
A Fed statement said its board of governors had granted the Federal Reserve Bank of New York authority to lend to Fannie Mae and Freddie Mac "should such lending prove necessary."
The loans would be at the primary rate offered to investment firms and would be backed by US government and federal agency securities.
The steps "boosted hopes that some calm will return to US financial markets," said Kazuhiko Shibata, Tokyo branch manager of Dresdner Bank.
The government-chartered, shareholder-owned Fannie Mae and Freddie Mac together own or guarantee about 40 percent of the total value of home loans in the United States.
"It now seems unthinkable that the US government will just let those (two companies) go under without doing anything. That should be taken as something positive," Deutsche Securities strategist Koji Fukaya told Dow Jones Newswires.
But the measures do not mean that the US economy is in better shape than before or that interest rates there are set to be raised, "so it's tough to buy the dollar," Fukaya said.
Kathy Lien at Forex Capital Markets said the market is "still nervous and skeptical about the effectiveness of the US government's latest announcements.
"They rightfully believe that the Fed is running out of magic bullets. In order to avert another panic, the Fed needs to shock the markets, just as they did last year with aggressive (interest rate) easing," she said.
Markets saw the moves as an effort to stave off a repeat of the turmoil triggered by the collapse of US investment bank Bear Stearns in March, due to the subprime home mortgage crisis.
Traders were nervous ahead of earnings results from Wall Street giants Merrill Lynch and JPMorgan Chase on Thursday, followed by Citigroup on Friday.
"If the banks reveal bigger-than-expected losses, that could trigger a heavy sell-off of the dollar," said Dresdner's Shibata.
In late New York trade, the dollar stood at 1.0160 Swiss francs, down slightly from 1.0163 late Friday.
The pound was at 1.9947 dollars, up from 1.9884.
