The euro fell the most against the dollar since the introduction of the shared currency in 1999 after France and Belgium led a state-backed rescue of Dexia SA, as the widening financial crisis forces governments to prop up financial institutions across Europe.
The 15-nation currency also weakened against the British pound after Belgian Prime Minister Yves Leterme said Dexia, the world's biggest lender to local governments, will receive about $9.2 billion to shore up its capital. The dollar rose against the yen on speculation the U.S. Senate will salvage a $700 billion bank-bailout plan as early as tomorrow after Congress rejected it yesterday.
"The consensus is the U.S. banking system is a little bit further along in its exposure of its toxic assets," said Firas Askari, head currency trader at BMO Nesbitt Burns in Toronto. "It's a case of which is relatively worse. The dollar's going to benefit against the euro because Europe has more to expose."
The euro fell 2.5 percent to $1.4079 at 11:55 a.m. in New York, from $1.4434 yesterday. The euro also slid to 149.10 yen from 150.38. It earlier reached 148.55, the weakest since Sept. 16. The yen weakened to 1056.93 per dollar from 104.18, after earlier reaching 103.54, also the most since Sept. 16.
The capital infusion for Dexia comes two days after Belgium, the Netherlands and Luxembourg rescued Fortis, the largest Belgian financial-services company, Britain took control of Bradford & Bingley Plc, the country's biggest lender to landlords, and Germany bailed out Hypo Real Estate Holding AG.
Implied volatility on one-month euro-dollar options rose to 16.9575 percent, or the highest in almost eight years. On Sept. 18, it reached 15.55 percent, the same level that triggered the Group of Seven nations to buy euros in 2000 to halt the 27 percent slide from its 1999 debut.
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