Dollar Rises Above 93 Yen on Obama’s Plan to Stem Foreclosures

By Ye Xie and Bo Nielsen

Feb. 18 (Bloomberg) -- The dollar rose above 93 yen for the first time in six weeks and gained to the highest versus the euro since November after President Barack Obama released a $75 billion housing program to stem home foreclosures.

The yen fell the first time in three days versus the euro and dropped against the Australian currency on speculation Obama’s plan may help revive the economy, reducing the demand for the Japanese currency as a haven. The Polish zloty advanced from a near-record low, while the Czech koruna and the Hungarian forint rose 2 percent, after tumbling yesterday when Moody’s Investors Service said it may cut the ratings of several banks with units in eastern Europe.

“Obama’s plan to mitigate home foreclosures may help risk sentiment temporarily,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Obama’s plan looks a good start, but there’s no silver bullet. There’s a strong consensus that the euro is heading lower.”

The dollar rose 0.9 percent to 93.22 per dollar at 10:06 a.m. in New York, from 92.41 yesterday, after touching 93.25 earlier, the highest level since Jan. 7. The yen gained 0.6 percent to 117.02 euro, from 116.27 yesterday. The euro fell 0.2 percent to $1.2553, compared with $1.2582 yesterday. It earlier touched $1.2542, the lowest level since Nov. 21.

Obama’s plan will create a new program to help as many as 5 million homeowners refinance conforming loans owned or guaranteed by Fannie Mae and Freddie Mac, according to a fact sheet released by the White House. Treasury will buy up to $200 billion of preferred stock in each of the housing companies, twice as much as previously pledged, the announcement said.

Koruna Advances 

The Czech koruna advanced 2.3 percent to 22.92 per euro after central bank Vice Governor Miroslav Singer signaled policy makers may raise interest rates to arrest the currency’s decline. The currency touched 29.68 yesterday, the weakest since October 2005 as Moody’s report fueled concern financial turmoil in eastern Europe will deepen.

Poland’s zloty gained 2.3 percent to 4.793 per euro, after tumbling 5.5 percent in the past two days. The Hungarian forint rose 1.6 percent to 304.56 per euro.

“It’s just a little pull-back from yesterday’s aggressive price actions, where risky appetite fell apart,” said Alan Ruskin, head of international currency strategy in North America at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut. “We are in a consolidation in a way. The broad picture hasn’t changed, which is toward negative European currencies.”

‘Drifting Downward’ 

The euro dropped 1.7 percent against the dollar yesterday and 1 percent versus the yen on speculation the slump in eastern Europe may impair banks in the 16-nation region that shares the single currency.
“The euro will start drifting downward again soon,” said Henrik Gullberg, a currency strategist in London at Deutsche Bank AG, the world’s biggest foreign-exchange trader. “The main concern is still the exposure of banks to Eastern Europe.” The euro will trade at $1.2350 in two weeks, Gullberg said. 

The ICE’s Dollar Index, which tracks the greenback versus the euro, yen, pound, Canadian dollar, krona and Swiss franc, reached 88.01 today, the highest level since Nov. 21. The index gained 7.9 percent this year.

To contact the reporters on this story: Ye Xie in New York at yxie6@bloomberg.net; Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net
Last Updated: February 18, 2009 10:15 EST