Can dollar hold its base with Fannie, Freddie fiasco?
Marla Guthrie
Jul. 12, 2008

The US dollar has nose-dived to test its previous all time low as Fannie, Freddie has gone south towards insolvency. The US currency dropped to within a cent of the all-time low against the euro on concern losses at Fannie Mae and Freddie Mac may deepen even after policy makers said the companies aren''t facing a government takeover.

The question in front of many analysts in the Wall Streets and currency traders is simple – can US Dollar hold its base as Fannie Mae and Freddie Mac does not face a government takeover. What happens if the liquidity crunch persists and these really go belly up?

The Dollar Index traded on ICE futures in New York, which tracks the greenback against the currencies of six U.S. trading partners, dropped 0.9 percent to 72.096 this week. It touched 71.795, the lowest level since April 23.

It may be a great time to go long on dollar index. What the US Government will do is to try and encourage the Fannie, Freddie to recover. It will provide all kinds of stimulus for that to happen. At the end, there is no way, the Fed will allow these two mega mortgage consolidators to collapse – nor even if they have to triple US budget deficit.

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