The dollar rose against the euro for the first time in five days as crude oil fell and investors speculated the greenback's biggest decline since January 2001 yesterday was too big to sustain.
Federal Reserve Chairman Ben S. Bernanke said in the text of his Senate testimony that failure to pass a $700 billion U.S. bailout will threaten the world's largest economy.
"The sooner we get a plan in placewe can worry about the details laterthe sooner we can reduce uncertainty," said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world's largest custodial bank, with more than $23 trillion in assets under administration.
The dollar increased 0.3 percent to $1.4734 per euro at 9:15 a.m. in New York, from $1.4774 yesterday, when it dropped 2.1 percent and touched $1.4866, the weakest level since Aug. 22. It was little changed at 105.50 yen, compared with 105.51 yen. The euro dropped 0.2 percent to 155.54 yen, from 155.91.
Crude oil for November delivery declined as much as 3 percent to $106.07 a barrel in electronic trading on the New York Mercantile Exchange. The October oil futures contract, which expired yesterday, had climbed by a record $16 a barrel to the highest since Aug. 21 as traders unwound positions.
The euro-dollar exchange rate and oil have had a correlation of 0.8 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.
Treasury Secretary Henry Paulson and Bernanke will provide lawmakers with more details today on the proposal to buy troubled assets from banks to shore up the financial system. They will start giving testimony to the Senate Banking Committee at 9:30 a.m. in Washington.
The bailout plan proposes buying devalued securities from financial institutions that economists estimate would drive U.S. government debt above 70 percent of gross domestic product and the annual budget gap to an all-time high next year. Bernanke said in a copy of his testimony that global financial markets remain under "extraordinary" stress.
Short-term pressure on the U.S. dollar will subside as the government's efforts to prevent a prolonged recession support the currency as the global economy slows, wrote Morgan Stanley currency strategist Stephen Jen in a note.
While U.S. interest rates may rise as the Treasury sells debt to fund its purchase of soured mortgages and other tainted loans on bank balance sheets, much of that may be recouped, mitigating the risk to the currency, Jen wrote yesterday.
"The idea that the dollar is going to be debased by this is amusing," said Jim O'Neill, head of global economic research at Goldman Sachs Group Inc., in an interview on Bloomberg Television. "If this plan gets through, once more sober heads start to think about it, for the people that claim they wanted to buy the dollar around three weeks ago when it was going crazy, you're getting another chance here."