Dollar Falls as Bailout Plan Erodes Confidence in U.S. Finances

By Ron Harui and Ye Xie

Sept. 23 (Bloomberg) -- The dollar fell for a fifth day against the euro, its longest losing streak since February, as a U.S. proposal to buy $700 billion of troubled assets eroded investor confidence in the nation's finances.

The greenback also dropped versus the yen as Treasury Secretary Henry Paulson's plan, sent to Congress Sept. 20, would increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. The currency declined before U.S. reports this week that may show home sales slowed, supporting the case for the Federal Reserve to lower interest rates.

``Obviously there are genuine concerns over the sustainability of the U.S. fiscal position,'' said Tony Morriss, a senior currency strategist at Australia & New Zealand Banking Group in Sydney. ``This week the dollar will remain under pressure.''

The dollar dropped to $1.4819 per euro at 8:59 a.m. in Singapore from $1.4774 late in New York, after falling 2.1 percent yesterday, when it touched $1.4866, the weakest since Aug. 22. It declined to 105.36 yen from 105.51, following a 1.8 percent drop. The currency may weaken to $1.4900 and 104.50 yen in coming days, Morriss said. The euro traded little changed at 156.18 yen, after rising 0.3 percent.

Foreign-exchange movements may be exaggerated because trading volumes are lower than normal due to a Japanese public holiday today, according to Morriss.

The U.S. currency has lost 6.6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The dollar reached $1.6038 per euro on July 15, the weakest since the European currency's 1999 inception.

Plotting Rescue

Paulson and Federal Reserve Chairman Ben S. Bernanke began plotting the rescue last week after New York-based Lehman Brothers Holdings Inc. filed for bankruptcy, the government seized control of American International Group Inc., and Merrill Lynch & Co. was forced into the arms of Bank of America Corp. Paulson and Bernanke testify before the Senate today on the banking crisis.

The cost of hedging against losses on 10-year Treasuries was quoted at 26 basis points yesterday in New York, or $26,000 per $10 million of notes protected, CMA Datavision prices show. That is up from just 2 basis points at the beginning of the year.

Credit-default swaps, contracts to protect against or speculate on default, pay the buyer face value if a company fails to adhere to its debt agreements.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net; Ye Xie in New York at yxie6@bloomberg.net