Dollar Heads for Weekly Gain

The dollar headed for a weekly advance against the euro, rebounding from a record low on signs U.S. investment banks will withstand credit-market losses stemming from the collapse of the subprime-mortgage market.

The U.S. currency rose versus the yen today after Citigroup Inc., the biggest U.S. bank, reported better-than-expected second-quarter results. Mexico's peso rose after the central bank raised borrowing costs for a second month in a bid to curb the highest inflation rate in more than three years.

The dollar traded at $1.5834 per euro at 11:25 a.m. in New York, compared with $1.5863 yesterday and $1.5938 at the end of last week. It dropped to an all-time low of $1.6038 on July 15. The currency climbed to 106.88 yen from 106.28 yen yesterday. The Japanese currency traded at 169.23 per euro, from 168.58 yesterday and 169.46 on July 11.

Citigroup's net loss was $2.5 billion, compared with earnings of $6.23 billion a year earlier. Analysts estimated the loss would be $3.67 billion, according to a Bloomberg survey. JPMorgan Chase & Co. and Wells Fargo & Co. reported better-than- expected results this week.

The peso rose 0.3 percent to 10.2052 per dollar after Banco de Mexico increased its key lending rate by a quarter- percentage point to 8 percent, the highest since December 2005. The decision matched the forecast of 21 of 28 economists surveyed by Bloomberg, while seven others said the rate would stay unchanged.

The pound dropped to 79.37 pence per euro, from 79.16 yesterday, and to $1.9955 from $2.0038 on speculation the U.K. government will boost borrowing as Chancellor of the Exchequer Alistair Darling introduces new spending guidelines.

The rules will allow it to break limits on public sector debt, the Financial Times said today, without citing anyone. A Treasury spokesman said the report is ``pure speculation.''

The S&P index lost 3.8 percent in the seven trading days ended July 15, the day the dollar reached its worst level against the euro, on speculation a government plan to shore up Fannie Mae and Freddie Mac would fail to restore confidence in the two largest buyers of U.S. home loans. It has since risen 3.6 percent.

Global banks and securities firms have reported losses and writedowns of $436 billion related to subprime loans to U.S. homeowners with poor credit, weighing on both stocks and the nation's currency this year.

Cheaper oil is still helping to support the greenback against the euro. Crude oil for August delivery is set for a record weekly drop in dollar terms, having lost about $14 a barrel since July 11 in New York.

The euro-dollar exchange rate and oil have moved in the same direction 90 percent of the time during the past year, according to Bloomberg calculations based on the correlation of their value changes.

Dollar Heads for Weekly Gain, Bloomberg
7/18/2008 10:27:14 AM