Dollar mixed on bailout strife

Frank: Republicans derailed the plan

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NEW YORK (CNNMoney.com) -- The dollar was mixed Friday against major currencies as the fate of the government's proposed $700 billion intervention remained unclear.

"It's a quiet day for most of the majors," said Amo Sahota, chief currency analyst at U.K.-based HiFX plc.

The market is "waiting for one thing only and that is a firm answer on the U.S. bailout," Sahota said.

The 15-nation euro slipped to $1.4615 in New York from $1.4614 on Thursday.

Great Britain's pound traded at $1.8417, up from $1.8348. And the greenback bought ¥106.14, down from ¥106.69.

Currency traders have become increasingly wary of the dollar as economic conditions in the United States have deteriorated rapidly over the last two weeks.

On Monday, the dollar saw its steepest one-day drop against the euro since the euro-zone currency was formed in 1999.

Sahota said he does not expect a "massive exit from the U.S. dollar." But given the nation's bleak economic outlook and the uncertainty around the government's response to it, many investors have "diversified away from the dollar."

Bailout talks. Lawmakers resumed negotiations Friday morning over the government's proposal to use tax dollars to bail out ailing financial services companies.

The plan has met with strong public opposition and has become an increasingly volatile political issue.

While most lawmakers seem to agree that a government intervention is necessary, Congress remains deadlocked over the details.

Talks broke down late Thursday following a high-level meeting at the White House as Republican members of Congress voiced opposition to the plan. President Bush said early Friday that he believes the plan will pass muster with lawmakers soon. (full story)

"It seems unthinkable that a deal won't be reached," wrote Scotia Capital currency strategist Steve Malyon in a note to clients. "The stakes are simply too high."

Failure to reach an agreement on a bailout could cause the financial system to collapse and push the country into a deep recession, Malyon said.

Still, if the impasse is resolved, "the stage will be set for a rebound in carry in the short term." But until then, "things are bound to be volatile," he said.

Washington Mutual. Other news keeping investors on edge was the latest bank bailout. Late Thursday, the Federal Reserve seized Washington Mutual - the nation's largest thrift - in the biggest bank failure in history. WaMu was then sold to JP Morgan (JPM, Fortune 500).

The news served to underscore how deep the financial crisis extends. To date, 13 banks have faced failure.