Dollar Gains Most in 3 Months Versus Yen


The dollar rose the most in three months against the yen after the Federal Reserve said it will lend up to $200 billion of Treasuries and boost swap lines with European central banks in a bid to ease a credit crisis.

The U.S. currency also rebounded from a record low versus the euro as traders speculated the steps will help spur bank lending and avert a recession. Traders trimmed bets the Fed will slash its benchmark rate as much as 0.75 percentage point this month, from 3 percent.

The U.S. currency climbed to 102.82 yen at 9:41 a.m. in New York from 101.76 yesterday, its biggest jump since Dec. 12. The dollar sank to 101.43 earlier, matching the eight-year low it set March 7. It traded at $1.5378 per euro from $1.5343, after touching $1.5495, the weakest since the euro's 1999 debut.

The euro rose to a record against the dollar earlier after an industry report showed investor confidence in Germany unexpectedly improved this month, adding to evidence Europe's largest economy may weather a U.S. slowdown.

The euro set an all-time high against the dollar for the ninth trading day in 11, as European Central Bank council member Axel Weber said he sees ``no room'' to lower interest rates.

The central bank said it set up a new tool, the Term Securities Lending Facility, to lend Treasuries to primary dealers in exchange for debt including private mortgage-backed securities that have slumped in value as homeowners defaulted.

Traders are still betting the Fed will cut its benchmark rate on March 18 for the sixth time since September, from 3 percent. The likelihood of a reduction to 2.25 percent was 62 percent, compared with about 90 percent before the Fed announcement, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.


TradingEconomics.com, Bloomberg
3/11/2008 7:29:17 AM