The dollar fell against the euro this morning but climbed on a sliding yen after the US government seized control of mortgage companies Fannie Mae and Freddie Mac to shore up the US housing market and prevent the spread of global financial turbulence.
The yen was the major loser as the move seemed to lessen one major risk to global financial markets and the US economy, reversing last week's broad surge on a flight to safety.
The takeover last night of the two mortgage giants, which own or guarantee half of the country's $12 trillion in outstanding home mortgage debt, followed growing concern about the mounting losses at both, undermining the lenders as other sources of home lending have dried up.
Still, the impact of the rescue package on the US economy may be limited and the outlook for the dollar is unclear after data on Friday showed a jump in the unemployment rate as the economy lost jobs for the eight month in a row, analysts said.
Market watchers said the rise in oil and commodities prices today was a sign that investors' appetite for risk had improved slightly on the GSE bailout.
Oil prices rose almost $3 and poked above $119 today but the jump was also attributed to concern that Hurricane Ike could damage oil facilities in the Gulf of Mexico.
The dollar climbed 0.9 per cent to 108.75 yen after touching 109.05 on EBS. The euro rose 0.9 per cent to $1.4401, off an 11-month low of $1.4197 touched last week.
The dollar index, which tracks the value of the greenback against a basket of six currencies, slipped 0.2 per cent to 78.327.