The dollar rose to a one-month high Thursday morning, as dollar bulls cheered a report that U.S. Congressional legislation designed to shore-up Fannie Mae and Freddie Mac had passed the House and that the Senate will begin evaluating the measure.

The House voted 272-152 in favor of the measure, and the Senate is expected to pass the bill within days, The Washington Post reported Thursday. President Bush, reversing earlier opposition to a component of the bill that would help communities hit hard by foreclosures, said he will sign the legislation in its current form.



The prospect of the bill's passage drove the dollar to one-month highs against the world's other major currencies. The dollar strengthened about one-half cent to $1.5639 versus the euro, and about 1.5 cents to $1.9834 versus the British pound. The dollar was virtually unchanged at 107.67 yen versus Japan's yen.

Currency trader Andrew Resnick said the absence of a Washington veto fight was "the first tangible sign that the U.S. Government is not going to let the housing market go completely into default. It's good news for the dollar bulls."

Fannie, Freddie: 'too big to fail'

"Simply, Fannie Mae and Freddie Mac are too big to fail. They own or guarantee about half of the nation's mortgages. The politicians can argue over the form of capitalization for Fannie and Freddie and on mortgage lender reforms, but everyone agrees that the operations of Fannie and Freddie must continue," Resnick said. "A failure by either one would cause a collapse in the dollar and devastate financial and stock markets."

Resnick said the key component of the bill, from the dollar's standpoint, is Congressional authorization of the U.S. Treasury to extend lines of credit, and if necessary, to buy stock in, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE). That money "bolsters the two's financial condition" and will encourage banks and mortgage lenders to refinance problematic mortgages, "knowing that some federal money will be available to facilitate the refinancings." Fannie Mae fell 10 cents to $14.61, while Freddie Mac rose 5 cents to $10.85 in early Thursday morning trading.

However, after the bill's passage, the House, Senate, and President Bush must act on a second measure, in Resnick's interpretation, to pay for the $800 billion increase in the national debt ceiling to $10.6 trillion to fund the housing bill: a tax increase. Failure to do so would result in the dollar resuming its nearly decade-long slide, he said.

"Taxes have to go up because the housing bill will probably cost a minimum of $250-300 billion, probably a lot more," Resnick said. "But I'll leave it to the politicians to decide who pays and how much."