Dollar slips as government rescues put into place

The hope of a return to economic stability has boosted some of the emerging-market and European currencies this week which have taken hits against the dollar since this summer.

The 15-nation euro rose to $1.3650 in late afternoon trading from $1.3517 late Monday. On Friday, the euro had bottomed out at a 17-month low of $1.3257 as panic engulfed world markets.

The British pound rose to $1.7437 from $1.7280, while the dollar rose to 101.88 Japanese yen from 101.27 yen. The pound also hit a five-year low on Friday as well.

The yen, meanwhile, has been driven lower along with the dollar as traders regain some taste for risky trades.

In the U.S., the Treasury Dept. launched a $250 billion plan to buy stakes in financial companies. Nine major banks will participate at first, and the Bank of New York Mellon said Tuesday it would sell $3 billion of preferred shares to the government.

The Federal Reserve also said it would start buying up huge amounts of short-term debt starting Oct. 27 in order to shore up the commercial paper market.

"It hasn't been proven that it is the start of a new move for the dollar at all," said Meg Browne, senior currency strategist at Brown Brothers Harriman in New York. Government actions have "provided some temporary relief. Some of the currencies that have been hard hit are recovering somewhat. I don't think we can say we're out of the water yet...it remains to be seen how effective these policies will be."

Meanwhile, Europe put 1.7 trillion euros ($2.3 trillion) on the line Monday to protect the continent's banks, a figure that dwarfs the Bush administration's $700 billion rescue program, in its most unified response yet to the global financial crisis after a stumbling start.

The action by Germany, France, the Netherlands, Spain, Portugal, Austria and Britain came after weeks in which the governments often acted independently--a piecemeal approach that failed to stop steep and frightening slides on financial markets.

On Tuesday, the London interbank rate, or Libor, dipped lower, while the yields on three month Treasury bills edged higher. A slight thaw in credit markets and hopes for future market stability and normal lending means that banks may be more willing to lend out dollars, tamping down demand for bucks in the spot market.

The Bank of Japan also said on Tuesday that it will offer an unlimited amount of dollars to financial institutions in Japan, bringing it in line with other major central banks.

In other New York trading, the dollar fell to 1.1338 Swiss francs from 1.1401, but gained to 1.1616 Canadian dollars from 1.1590 late Monday.

The dollar also fell against the New Zealand and Australian dollars, two currencies that had suffered from reduced risk appetite since mid-summer. On Friday, the Australian dollar traded at greater than five-year lows against the greenback, while the New Zealand dollar fell to a five-year trough last Wednesday.

But the dollar's losses are likely to be limited, said Browne. The buck may not "take another sharp turn up, but it does maintain a positive tone."