Dollar climbs as Obama unveils housing plan

NEW YORK (AP) - The dollar climbed against most major currencies Wednesday as President Barack Obama unveiled a $75 billion mortgage relief plan, amid a downgrade on economic growth from the Federal Reserve and bleak reports that industry production and construction of new homes in the U.S. have plunged to record lows.

The 16-nation euro fell to $1.2555 in late New York trading from $1.2615 late Tuesday. Earlier in the session, the euro hit its lowest point since late November at $1.2511.

Meanwhile, the British pound slipped to $1.4224 from $1.4266, and the dollar rose to 93.76 Japanese yen from 92.42 yen.
The Federal Reserve on Wednesday said it expects unemployment to rise to between 8.5 percent and 8.8 percent this year, up from the 7.6 percent it forecast last year. The Fed also sees the economy shrinking between 0.5 percent and 1.3 percent, instead of its prior outlook for 0.2 percent contraction to 1.1 percent growth.

The Fed's latest outlook, if true for 2009, would mark the weakest year of economic activity since 1982.

Earlier in the day, President Obama announced a $75 billion plan meant to help prevent foreclosures for up to 9 million Americans.

The plan is more expensive than initially expected and aims to aid borrowers who owe more on their mortgages than their homes are currently worth, as well as those on the verge of foreclosure.

Separately, the Fed said Wednesday that production at the nation's factories, mines and utilities fell to a record low of 1.8 percent last month. Many economists expected a smaller 1.5 percent decline. The Fed's report showed that factory production dropped by 2.5 percent in January, with shutdowns at plants making autos and related parts figuring prominently in that decline.

Another report from the Commerce Department said construction of new homes and applications for future projects both plunged to record lows in January.

Also Wednesday, the European Commission said France and Germany will see their budget deficits go way above the ceiling of 3 percent of gross domestic product, a maximum fixed by rules designed to boost the stability of the euro. The EC said it will cut countries -- both in and out of the 16-nation euro zone -- some slack in complying with the bloc's sound finances rules.

The euro dropped Tuesday after ratings agency Moody's said that faltering economic conditions in eastern Europe would hit the local subsidiaries of major Western banks and potentially hurt their corporate parents, primarily in Austria, Italy, France, Belgium, Germany and Sweden.

"It is clear that the dollar has been benefiting from weak economic data, both at home and abroad, as well as rising risk aversion," said Michael Woolfolk, an analyst at Bank of New York Mellon. "We're seeing safe haven flows to the U.S. dollar, and we've seen the dollar now move into a new trading range."

In other late trading Wednesday, the dollar was flat at 1.2644 Canadian dollars, and advanced to 1.1762 Swiss francs from 1.1695 francs late Tuesday.