$1T US Bailout May Crush Dollar's Rally

Plan's huge pricetag undermines confidence in the buck
By Jim O'Neill,  Newser User
Posted Sep 22, 2008 6:18 AM CDT
Federal Reserve Chairman Ben Bernanke testifies before the House Financial Services Committee hearing on Capitol Hill in Washington.    (AP Photo/Susan Walsh, file)
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(Newser) – The US plan to spend up to $700 billion on suspect mortgage-related instruments and a possible additional $400 billion to insure money market mutual funds may stabilize financial markets—but it’s just as likely to send the dollar into a dive, eroding its 3-month rally, reports Bloomberg. “The dollar will get crushed,” predicted one expert.

Already, the dollar has begun to lose some of the luster it regained since June, including a 10% bump against the euro. Loss of faith in the dollar is driven by worries about increasing American debt, which would hit $11.3 trillion under the bailout plan. The slide began even before the plan went to Congress, with the dollar falling against 14 major world currencies. But some analysts believe the plan will ultimately help the greenback.