Dollar rallies as credit thaws

The greenback was boosted by a thawing credit market and stimulus talk by Fed chair Ben Bernanke.
By Kenneth Musante, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) — The dollar surged to its highest level against the euro in nearly a year and a-half Monday as the frozen credit markets showed further signs of thawing and Federal Reserve Chairman Ben Bernanke suggested a second economic stimulus package.

The dollar gained against the euro, which fell to $1.3343 from $1.3379 late Friday. The last time the dollar was higher was June 14, 2007, when the euro was trading at $1.3311.

The dollar also rose against the British pound, which fell to $1.7163 from $1.7202, and gained against the Japanese yen, rising to ¥101.87 from ¥101.59.

The interbank cost of borrowing U.S. dollars fell dramatically Monday as the overnight Libor rate fell to 1.51% from 1.67% on Friday, according to Bloomberg.com. Libor is the daily average of what 16 banks charge other banks to lend money in London and is used to calculate adjustable rate mortgages. [Ed. On Friday we post the TED Spread. Let's give it a few days to see if the credit crunch is easing.]

The overnight Libor was nearly even with the 1.5% rate the Federal Reserve charges banks to borrow. Just two weeks ago the overnight Libor had reached as high as 6.88% after the Treasury’s $700 billion bailout bill was signed into law on Oct. 3.

The greenback also got a boost from Bernanke, who said Monday that Congress could consider a second stimulus package, although he did not indicate what should be included.

Source: CNN Money

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