Dollar down as congress expresses concern over bailout

The dollar was down against the euro and the yen on Thursday as uncertainty continued to prevail regarding the U.S government’s proposed $700 billion rescue package for banks. President George W. Bush stated on Wednesday that the states were in the middle of a serious financial crisis and could face a “painful” recession. On Wednesday Fed Chairman Bernanke stated that “extraordinary stress” in financial markets was hitting the U.S. economy hard. Concern that congress could delay the bailout decision has weighed on the dollar, pushing it lower. “The market’s main points of concern are comments from top U.S officials, the details of the bailout package, and how soon Congress will pass it”, said the senior manager of foreign exchange sales for a Tokyo bank. At 8.38am GMT EUR/USD was at 1.4708 and USD/JPY was trading at 105.89.

Meanwhile in London, Sterling was up against the greenback after a Bank of England policy maker, Andrew Sentance, stated that the countries inflation mandate must be adhered to. Sentance remarked on Wednesday that policy makers must guard against ``allowing the economic slowdown to develop into a deflationary spiral which would not be consistent with our mandate to meet the 2 percent inflation target.'' With the next interest rate decision out on the 9th of October, there is increased speculation that that the Bank of England will cut rates from the current 5%. GBP/USD was trading at 1.8597 at 8.40am GMT.

Eyes will be on important data releases today in the U.S to determine the direction of the greenback. At 1.30pm GMT Core durables orders and unemployment claims will be released. The expectation is that both releases will reinforce pessimism about the economy in the States and may put downward pressure on the dollar. In addition, data on the sales of new houses in the U.S are expected to have fallen last month to 510,000 from 515,000 in July. This report is out at 3.00pm GMT.

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