Dollar strengthens versus yen and euro

The dollar strengthened against the yen and euro yesterday as appetite for the greenback was whetted by the Obama administration's latest attempt to fix the US banking system.

The announcement by Tim Geithner, Treasury secretary, that $1,000bn would be used to extricate toxic assets from the balance sheets of debilitated US banks helped the dollar claw back from early losses.

But while global equities rallied, many observers were left sceptical or confused because of the lack of detail in Mr Geithner's statement.

"Winston Churchill once quipped that the 'Americans will always do the right thing after they have exhausted all the alternatives'," said Mark Chandler, a currency strategist at Brown Brothers Harriman. "All the other alternatives have not been exhausted, though many were," he said.

"Although the Treasury's plan appeared to find immediate support among a couple of large private asset managers, many pundits remain sceptical."

By midday in New York, the dollar was 0.5 per cent higher against the euro at $1.3566 and up 1.7 per cent against the yen at Y97.29.

The yen - its bouts of strength typically seen as closely correlated to heightened investor risk aversion - eased against a basket of competitors as European and US equities advanced.

The Japanese currency shed 1.4 per cent against the pound to Y140.68 and 1 per cent on the euro to Y131.82.

Commodity currencies also gained against the dollar and the yen on the back of higher crude oil and non-precious metals prices.

The Australian dollar rose 1.3 per cent to $0.6986 and

2.9 per cent against the yen to Y67.91. The New Zealand dollar climbed 1.6 per cent to $0.5687 and by 3.3 per cent on the yen to Y55.28.

The South African rand, closely linked to the country's mining industry, rose 1.6 per cent to R9.4550 against the dollar.

"Commodity currency outperformance runs parallel with rising risk appetite, rebounding Asian currencies and signs that the Chinese economy has bottomed out," said Hans Redeker of BNP Paribas. Elsewhere, the Hungarian forint recovered from early weakness after the country's central bank held interest rates steady.

The forint had earlier eased against the euro after Ferenc Gyurcsany, prime minister, had offered to step down to allow someone with a fresh mandate to lead Hungary out of its recession.

The forint was down 0.3 per cent against the euro at Ft302.38 and 0.6 per cent against the Swiss franc to Ft197.43.

"Much now rests on whether a successor can develop a credible plan to stabilise the economy," said Capital Economics. "[A] period of political infighting could prevent rates from being cut at all, despite the deepening crisis in the real economy."