FOREX-Dlr rides up on Senate vote, ECB holds rates

Thu, Oct 2 2008, 12:40 GMT
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LONDON, Oct 2 (Reuters) - The dollar neared a one-year high versus a basket of currencies on Thursday after the U.S. Senate passed a $700 billion bank bailout plan, pinning the euro down as the European Central Bank held rates at 4.25 percent.

After the widely anticipated rate verdict, investors' focus rests with ECB President Jean Claude Trichet's post-decision news conference at 1230 GMT for his views on the escalating financial market crisis and future interest rate policy.

"With the deteriorating financial market crisis and emerging evidence of further deterioration in the economy ... all that should argue for the ECB president to soften his language a little bit," Brown Brothers Harriman senior currency strategist Audrey Childe-Freeman said.

"But hoping for a signal of a rate cut could prove disappointing," she said.

The U.S. rescue package, which will allow the government to mop up toxic mortgage-related assets from ailing banks to help resolve the year-long credit crisis, faces a second vote in the House of Representatives, which had earlier voted against it.

House Financial Services Committee Chairman Barney Frank told CNN the bill was more likely to pass, but the outcome was uncertain. The House will probably vote on Friday TOPWRAP].

"Overall, there is a recognition that this is broadly dollar positive and the momentum is in favour of the dollar," said Daragh Maher, deputy head of global FX strategy at Calyon in London.

At 1209 GMT, the dollar index, a gauge of its performance against six major currencies, was up 0.4 percent at 80.019 -- near a one-year peak of 80.375 struck last month.

The euro fell 0.8 percent on the day to $1.3905, having hit a session low of $1.3856 -- a level last seen in September 2007.

Against the yen, the single currency slid 1.1 percent to 146.61 yen, after having touched a two-year low of 145.97 yen.

TRICHET AWAITED

Investors are keenly awaiting Trichet's latest take on the intensifying global financial turmoil.

"Several analysts expect that the ECB will hint to a rate cut in the near future. The ECB would have to adjust its assessment of future economic developments, though. So far, the ECB has been rather optimistic about growth prospects," said Commerzbank analysts in a report.

Despite being at the epicentre of the financial crisis, the dollar has surged this week after several European banks had to be bailed out -- highlighting the international nature of the crisis. This had hit the euro and pound.

Banks and funds scrambling to buy dollars on the open market because they cannot borrow funds in frozen interbank money markets have provided further support for the greenback.

The confluence of factors has pushed the euro and sterling both down about 4 percent against the dollar so far this week.

(Additional reporting by Ian Chua in London, editing by Mike Peacock) Keywords: MARKETS FOREX

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