Euro falls to 11-month low as dollar rises
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The euro fell to 1.4165 dollars on Monday marking an 11-month low. The dollar's rise follows the US government's decision to rescue mortgage giants Fannie Mae and Freddie Mac.
The dollar rose against the euro and yen on Monday after US authorities bailed out two mortgage finance giants, easing investor worries over the future of global markets, dealers said.
The euro fell to 1.4165 dollars in London trading to mark a fresh 11-month low, from 1.4260 dollars in New York late on Friday.
Against the Japanese currency, the dollar rose to 108.63 yen from 107.67 yen.
"The US government's plan to takeover Freddie Mac and Fannie Mae aims to provide stability to financial markets and support the availability of mortgage finance," said Bank of Tokyo-Mitsubishi economist Lee Hardman in London.
The US Treasury Department announced on Sunday, when markets were closed, that it would put Freddie Mac and Fannie Mae under strict federal control and may invest up to 200 billion dollars in them.
Fannie Mae and Freddie Mac, government-chartered, shareholder-owned firms which provide liquidity to the US housing market, have been whipsawed by the financial meltdown in the past year.
The companies have lost some 90 percent of their value on fears of further losses from mortgage defaults by "subprime" customers, who were given loans despite patchy credit histories.
The US government plan could potentially cost taxpayers billions of dollars and Washington's decision to buy back preferred stock would mean common shareholders still risk losing millions of dollars, dealers said.
"Some players see expansion of debt on (the) US Treasury's balance sheet," which would ultimately hurt the dollar and US bonds, Jonathan Barrett, managing director of Commodity Broking Services in Sydney, told Dow Jones Newswires.
The market was further relieved by reports that South Korean and Japanese banking companies were considering investing in Lehman Brothers, one of the Wall Street banks worst-hit by the subprime debacle.
The euro's slide meanwhile continued on negative market sentiment over the outlook in the eurozone, whose 15-nation economy contracted in the second quarter for the first time since the bloc's creation in 1999.
In London trading on Monday, the euro changed hands at 1.4165 dollars against 1.4260 late on Friday, at 154.71 yen (153.57), 0.8050 pounds (0.8075) and 1.6039 Swiss francs (1.5955).
The dollar stood at 108.63 yen (107.67) and 1.1263 Swiss francs (1.1186).
The pound was at 1.7693 dollars (1.7653).
On the London Bullion Market, the price of gold fell to 807.54 dollars per ounce from 808.50 dollars late on Friday.
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