The see-saw that is the American dollar is still going up and down, this time down to a four month low against the yen, thanks to investors backing away from risky business positions with the refusal to pass the $700 billion bank bailout plan by the United States government.  Not only did the dollar drop but Wall Street saw the biggest sell-off of stock since the last questionable economy in 1987.  Some Japanese institutional investors did help the dollar from falling further against the yen by buying up dollars in an effort to help the global economy and in preparation of closing their books on the first half of the fiscal year.

The unexpected rejection of the bailout plan to purchase toxic assets from struggling banks in an effort to ease the strain off of the lending markets hit the dollar hard, and dashed any hopes of a comprehensive solution to the credit crisis that is toppling financial institutions like AIG and Lehman Brothers left and right.  The situation has stirred up worries of an economic downturn burrowing deeper than it already is.  According to Osamu Takashima, the chief currency analyst at Bank of Tokyo-Mitsubishi UFJ, “There are many dollar-selling factors such as a slowing economy, possible Fed rate cuts and the outlook for worsening fiscal conditions for the U.S. government as it is expected to spend money to rescue banks.”

The Euro and the British pound sterling are also taking a beating, as European banks are starting to feel the fallout of the increasing and ever widening economic crisis.  Investors in Europe were prompted to rush to invest in ‘safe-haven’ currencies, such as the Swiss franc and the yen.  One senior trader at a Japanese trust bank commented that the yen is ‘an alternative choice as safe-haven’ currency with the Euro and dollar and being shunned because of the credit crisis.

With the lawmaker’s rejection of the bailout package, investors became panicked and the Dow Jones industrial average plummeted and suffered its largest one day point drop ever.  The Asian markets fell as well and even though the trading platform EBS recovered itself from late trade, the dollar still hit 103.50 yen before settling at 104.11 by the end of the business day, Monday, September 29, 2008.  However, risk aversion is spreading and many traders believe the dollar’s recovery is very short lived.  If the Federal Reserve cuts interest rates even more from the current 2%, it will weaken the dollar even more although it will – hopefully – limit the effects of would could be the worst financial crisis the country has seen since the Great Depression.