Dollar Regains Strength After Freddie And Fannie Bill Is Approved

The dollar traded on a high against the yen after U.S. lawmakers approved a bill that allows Treasury Secretary Henry Paulson to bail out Fannie Mae and Freddie Mac. The currency was also near a two-week high against the euro as a rally in financial stocks prompted traders to increase bets the Federal Reserve will raise interest rates. 'The rescue plan will give the dollar some measure of support,' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. 'It seems the U.S. government has avoided the worst-case scenario for Fannie and Freddie.' EUR/USD is currently trading at 1.5684 as 7:38 am, GMT.

The U.K. pound fell against the euro and the dollar before a report that may show retail sales in Europe's second-biggest economy declined last month. 'Against a backdrop of a weakening economic outlook, we continue to expect a slowdown in retail-sales growth,' said Grant Lewis, London-based head of fixed-income research at Daiwa Securities SMBC Europe Ltd. and a former U.K. Treasury official. 'We expect the Monetary Policy Council to be in a position to cut rates come the fourth quarter of the year, once the slowdown is confirmed by the actual data and inflation has peaked.' U.K. policy makers left the nation's key interest rate unchanged at 5 percent at the July 10 meeting after lowering them three times since November in a bid to stave off a recession in the face of accelerating inflation. GBP/USD is currently trading at 1.9935 as of 8:50 am, GMT.

German business confidence fell to the 97.5 level in July as record oil prices and the U.S. slowdown dimmed the outlook for growth in Europe's largest economy. The fastest inflation in 16 years prompted the European Central Bank to raise its key interest rate by a quarter point to 4.25 percent this month even as soaring energy and food costs squeezed household incomes. With the stronger euro and deepening U.S. housing crisis curbing exports, German Chancellor Angela Merkel said yesterday the country faces a 'clear slowdown.'

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