Dollar Rises From 13-Year Low on Bets Bush to Rescue Automakers

By Jamie McGee and Michael J. Moore

Dec. 12 (Bloomberg) -- The dollar rose from a 13-year low against the yen on speculation the Bush administration will use funds intended for financial institutions to rescue General Motors Corp. and Chrysler LLC.

The yen pared its gain against major currencies on speculation investors will sell higher-yielding assets and pay back low-cost loans in Japan’s currency at a slower pace. The pound weakened to a record low against the euro for a fifth day after HBOS Plc said bad loans will keep rising as credit conditions deteriorate.

“The market sentiment remains very sensitive to the situation around the U.S. automakers,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The most recent indication is that the Treasury may step in and provide some sort of assistance. That led to some improvement in market sentiment.”

The dollar traded at 91.07 yen at 4:27 p.m. in New York, compared with 91.45 yesterday, after dropping as much as 3.2 percent to 88.53, the lowest level since August 1995. The euro fell 0.2 percent to 121.82 yen from 122.09. The currency was quoted at $1.3377, compared with $1.3352.

The Bush administration dropped its opposition to using part of the $700 billion bank bailout to provide financing for U.S. automakers after the Senate failed yesterday to approve emergency loans.

Sterling slid as much as 1.3 percent to 89.97 pence per euro, the weakest level since the 15-nation currency’s 1999 debut. HBOS said this year’s charge for bad loans rose to 5 billion pounds ($7.5 billion).

Yen Pares Gains

The yen pared its advances, rising 2 percent to 60.25 versus the Australian dollar and 2.1 percent to 8.98 against the South African rand, on bets investors will slow the unwinding of carry trades, in which they get funds in a country with low borrowing costs and buy assets where returns are higher.

Japan’s currency earlier gained 6.1 percent versus the Aussie and 4.5 percent against the rand. Japan’s 0.3 percent target lending rate compares with 11.5 percent in South Africa and 4.25 percent in Australia. The Standard & Poor’s 500 Index rose 0.7 percent after earlier dropping 2.6 percent.

“It’s very much the Treasury’s statement,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “This basically diminishes the near-term risk of an imminent bankruptcy in the auto sector. That’s causing the risk trade to improve.”

Dollar Versus Yen

The U.S. currency fell 18 percent against the yen this year, the most since 1987, as $986 billion of credit-market losses sparked a seizure in money markets and threw the U.S. economy into a recession. The dollar dropped 1.8 percent against the yen this week and 4.7 percent against the euro.

“We still think there is room for the yen to strengthen,” said Serebriakov, who forecast the yen will appreciate to below 90 per dollar again in coming weeks. “Market volatility will likely remain high and will contribute to yen strength.”

Finance Minister Shoichi Nakagawa told reporters in Tokyo today Japan isn’t considering currency intervention right now. Japan last intervened on its own when it sold a record 20.4 trillion yen ($227 billion) in 2003 and 14.8 trillion yen in the first quarter of 2004, when the yen gained to 103.42 per dollar.

The last time the Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, intervened in the currency market was on Sept. 22, 2000, when they bought the euro after it tumbled 27 percent from its 1999 debut. The G- 7 last propped up the dollar in 1995, when it sank to a post- World War II low of 79.75 yen. Central banks intervene when they buy or sell currencies to influence exchange rates.

U.S. Retail

U.S. retail sales fell in November for a record fifth consecutive month, led by slumps at auto dealers and service stations. The 1.8 percent decrease reported today by the Commerce Department extended the longest stretch of decline since records began in 1992.

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 0.1 percent to 83.79. It touched 88.463 on Nov. 21, the highest since April 2006.

To contact the reporters on this story: Jamie McGee in New York at jmcgee8@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

Last Updated: December 12, 2008 16:29 EST