Dollar Snaps Four-Day Drop Versus Euro Before Testimony on Plan

By Bo Nielsen

Sept. 23 (Bloomberg) -- The dollar snapped four days of declines versus the euro before Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke give testimony to the Senate on a government plan to rescue the banking system.

The U.S. currency also rose against the Swiss franc and the British pound. Paulson and Bernanke will provide more details today on the proposal to buy $700 billion of troubled assets from banks to shore up the financial system. The euro dropped after a report showed Europe's manufacturing and service industries contracted for a fourth month in September.

``We might see some retracement of the dollar's losses,'' said Paul Robson, a London-based currency strategist at the Royal Bank of Scotland Group Plc. ``The more details we get the better it'll be because the uncertainty is so big at the moment. People are getting out of some of the positions they got into as the dollar fell sharply the last couple of days.''

The dollar strengthened to $1.4701 per euro as of 9:31 a.m. in London, from $1.4774 in New York yesterday, when it touched $1.4866, the lowest since Aug. 22. It rose to 105.87 yen, from 105.51 yen. The euro traded at 155.75 yen, from 155.91 yen.

Paulson and Bernanke will start giving testimony to the Senate Banking Committee in Washington at 9:30 a.m. local time. The rescue-plan proposes buying devalued securities from financial institutions that economists estimate would drive U.S. government debt above 70 percent of gross domestic product and the annual budget gap to an all-time high, possibly exceeding $1 trillion next year.

`Movements Exaggerated'

The dollar rose to 1.0810 per Swiss franc, from 1.0743.

``Traders are just covering bets on a decline in the dollar ahead of tonight's testimony,'' said Norifumi Yoshida, vice president of the trading section at Mizuho Corporate Bank Ltd. in Singapore. ``The markets are very thin so price movements are exaggerated.''

Foreign-exchange movements may be exaggerated because trading volumes are lower than normal due to a Japanese public holiday, according to Tony Morriss, a senior currency strategist in Sydney at Australia & New Zealand Banking Group, Australia's fourth-biggest lender.

The euro declined after Reuters Plc reported the Royal Bank of Scotland Group Plc's composite index fell to 47 in September, from 48.2 in August. Economists forecast 47.8, according to the median of 21 estimates in a Bloomberg News survey. The index is based on a survey of purchasing managers by Markit Economics in London. A reading below 50 indicates contraction.

``If we see signs of a more rapid deceleration of the European economy it will remove the attractiveness of the euro relative to the dollar,'' said Henrik Gullberg, a currency strategist at Deutsche Bank AG in London.

The U.S. currency lost more than 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11. The U.S. Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six major trading partners, slumped almost 2 percent yesterday, the biggest drop in a decade, to 76.151. It rose 0.6 percent to 76.636 today.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net