Dollar Recovers Further as Bailout Announced

Dollar bounces back, recouping some of week's huge losses, as Detroit gets emergency loans

The dollar continued to surge higher against the euro Friday, recovering some of this week's steep losses as the U.S. government announced a $17.4 billion bailout plan for Detroit.
The 15-nation euro plummeted more than 4 cents to $1.3887 in late New York trading Friday from $1.4313 late Thursday. The euro peaked at $1.4719 early Thursday morning, its highest point against the dollar since September, and has dropped 5.7 percent since then. Last Friday, the buck was worth $1.3371 against the euro.
The dollar got steamrolled after the Federal Reserve cut rates to a range from 0 to 0.25 percent on Tuesday and announced it would take other, unprecedented moves to inject liquidity into markets and jumpstart lending. The dollar started to recover Thursday, however, and the U.S. government's announcement of $17.4 billion in emergency loans for Chrysler LLC and General Motors Corp. now and early next year helped tug it up further as equities gained.

The ECB also said Thursday that it would increase the interest rate it charged banks to borrow from the ECB, while lowering the rate paid on deposits parked within the bank. The changes would take effect Jan. 21 after the ECB's next meeting Jan. 15, when the refinancing rate could change.
While the ECB did not detail the reasons for the moves Thursday, officials at the bank recently said they were considering measures to encourage financial institutions to lend more to one another.
Interbank lending has all but stopped in recent months as bank failures and credit defaults caused lenders to hoard their cash.

The moves could effectively increase the money supply, which, like cutting rates, can weaken a currency.
The ECB still has one of the highest key interest rates of the majors at 2.5 percent. The Bank of England is likely to ease further from its 57-year low of 2 percent as Britain struggles with a collapse in housing, a shaky financial sector and unemployment nearing 2 million people.
The pound slid to $1.4859 from $1.5070 late Thursday, and is circling parity with the euro at 1.0716 euro.

The Bank of Japan cut its interest rate 0.1 percent on Friday, partly due to the yen's recent surge to 13-year highs, said Gov. Shirakawa. A strong yen hurts the country's major exporters, raising the prices of Japanese autos and electronics for overseas consumers.
The dollar inched up to 89.45 Japanese yen from 89.42 yen. On Wednesday, the dollar bottomed at 87.11 yen, a 13-year low.
In other late trading, the dollar rose to 1.1073 Swiss francs from 1.0754 francs late Thursday, and edged up to 1.2221 Canadian dollars from 1.1997.

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