Wednesday March 19, 06:58 PM
Dollar under pressure on rate cut, but helped by govt credit move
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LONDON (AFP) - The dollar weakened against the euro Wednesday but drew some support from a decision by US regulators to make an extra 200 billion dollars available to the troubled US housing market.
The single European currency in late-day trade was at 1.5629 dollars against 1.5626 late Tuesday in New York.
The dollar was meanwhile trading at 99.06 yen, down from 99.72 on Tuesday.
The US greenback was on the one hand under pressure from the Federal Reserve's three-quarter point cut in its benchmark interest rate to 2.25 percent on Tuesday, aimed at settling turbulent credit markets and warding of a US recession.
But the move widened the gap between rates in the United States and the eurozone, where the European Central Bank has held its principal rate steady at 4.0 percent, making the euro far more attractive to investors.
Later in the day however the dollar recovered lost ground after US regulators said they would allow government-sponsored mortgage lenders Fannie Mae (NYSE: FNM - news) and Freddie Mac (NYSE: FRE - news) to pump an extra 200 billion dollars into the housing sector.
The Office of Federal Housing Enterprise Oversight (OFHEO) said it would allow the two firms to invest a portion of their 30 percent capital surplus in mortgages and mortgage-backed securities.
The new regulations will lower the minimum capital requirement for the two agencies to 20 percent from 30 percent and add badly needed cash to the troubled sector.
This move is expected to help lenders provide more cash at a potentially lower rate of interest to the housing market, which has been suffering from a meltdown linked to foreclosures in the subprime -- or high-risk -- sector.
Treasury Secretary Henry Paulson praised the agreement, saying "additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market."
Analysts at ABN Amro (Amsterdam: ABAGB.AS - news) said the announcement reassured investors and sparked a bout of dollar-buying.
But dealers said there were still concerns about the fallout from the US housing market meltdown, despite the Fed rate cut and better-than-expected results from investment banks Lehman Brothers (NYSE: LEH - news) and Goldman Sachs (NYSE: GS - news) .
In London currency trading on Wednesday, the euro changed hands at 1.5630 dollars against 1.5626 late on Tuesday, at 154.81 yen (155.80), 0.7881 pounds (0.7792) and 1.5627 Swiss francs (1.5666).
The dollar stood at 99.06 yen (99.72) and 0.9999 Swiss francs (1.0023).
The pound was at 1.9824 dollars (2.0052).
On the London Bullion Market, the price of gold fell to 958.50 dollars per ounce down from 1,006.75 dollars late on Tuesday.
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