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Dollar Rebounds vs. Euro as Crude Oil Prices Slump

The dollar rebounded from record lows versus the euro on Tuesday, supported by a sharp fall in crude oil prices and a rise in U.S. stocks.

Dollar and Euro
Dollar and Euro

The euro traded down slightly after earlier rising to a record peak of $1.6037, according to Reuters Dealing. The dollar was down more than 1 percent against the yen , but off session lows around 104.17 yen.

"The dollar was helped by sharply higher stocks and lower oil," said Ron Simpson, director of foreign exchange research at Action Economics in Tampa, Florida. "Those were factors in bringing some dollar short-covering to bear as people had been betting the dollar had more room to fall."

Crude for August delivery completed trading on the New York Mercantile Exchange down $6.44 at $138.74 a barrel. It was the commodity's biggest dollar drop in a single day on the Nymex since January 1991.

Earlier, the dollar fell to a record low against the euro as concern about the health of the U.S. financial sector continued to weigh on investor sentiment.

The dollar's slump came just two days after the U.S. government had tried to restore confidence with a rescue package for mortgage agencies Freddie Mac and Fannie Mae .

Initial optimism about the measures quickly faded as investors focused on the potential cost.

Shares of Fannie Mae and Freddie Mac dropped again on Tuesday due to concerns that their rescue plan might hurt the equity stakes of current shareholders.

The U.S. dollar held losses Tuesday as government data for June showed a larger-than-expected jump in producer prices and disappointing retail sales.

"The market is right now not really trading on fundamentals, it's very much trading in a panic state," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, New Jersey.

"The dollar was taken to new all-time lows against the euro and dropped broadly against all other currencies."

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