Dollar Gives Back Most Gains, Bernanke/Paulson Defend Fannie/Freddie to Congress
Jul 11th, 2008 | By Doug Casey | Category: US Dollar & Forex TradingIn the currency market, the dollar was slightly higher against the euro. Late Thursday, the euro was trading at $1.5729 vs. $1.5741 on Wednesday. The buck gave back much of its gain from early in the day, as equities sagged off of their highs.
Traders were paying close attention to Washington, trying to sort out what may happen with government-sponsored mortgage buyers Fannie Mae and Freddie Mac. Fed Chair Ben Bernanke and Treasury Secretary Henry Paulson were on the Hill, talking about financial regulatory reform before the House Financial Services Committee.
Paulson told Congress that both Fannie and Freddie are well capitialized, but that didn’t keep the companies’ stocks, which have been in free fall, from declining further yesterday. Their troubles are the latest, and potentially the most serious, of the continuing threats to the housing/credit market.
“Financial market turmoil resurfaces amid increased uncertainty [about] the solvency of Fannie Mae (FNM) and Freddie Mac (FRE) [raising] questions about the need for a government bailout,” wrote Ashraf Laidi, chief foreign exchange strategist at CMC Markets.
“Four months after the Federal Reserve rescued ailing Bear Stearns (BSC) via a lifeline from JP Morgan (JPM), questions arise on the way the government will rescue these companies, which own half of the $12 trillion in home mortgages,” Laidi added.
Looking ahead, strategists at KBC Bank in Brussels see the dollar stuck in a broad trading range vs. the euro, wandering between $1.5285 on the low end and the euro’s all-time high at $1.6020.
Economic fundamentals in the U.S. and Europe “are not that much different and both the [European Central Bank] and the [Federal Reserve] are in a similar deadlock,” they wrote, with both facing increasing inflationary pressures.
And the Bank of England, as expected, decided yesterday to leave its key lending rate unchanged at 5%. The BoE is as trapped as any other, confronted by a slowing economy with inflation set to surge even further after hitting 3.3 %, annualized, in May.
Source: Dollar Gives Back Most Gains, Bernanke/Paulson Defend Fannie/Freddie to Congress
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