During early deals on Tuesday, the British pound climbed to a new multi-month high against the Japanese yen as U.S. Treasury Secretary Timothy Geithner unveiled more detailed plans to help U.S. banks mop up toxic mortgage-related assets.
The pound also showed strength against its other major counterparts and hit a 6-week high against the US dollar and a 6-day high versus the Swiss franc.
Yesterday, the Obama administration released details of its latest plan to solve the massive, debilitating banking crisis that continues to hold the financial system in its crushing grip.
The plan unveiled by Treasury Secretary Timothy Geithner will set up an investment fund to buy mortgage-related securities and other assets that are hurting the balance sheets of banks. The new Public Private Investment Program would combine taxpayer money with private funds, aiming to buy loans and free up banks to renew lending.
Geithner's plan involves using up to $100 billion in funds from the $700 billion financial rescue plan passed in 2008 in addition to capital from private investors to generate an estimated $500 billion to purchase the toxic assets, a number that could double to $1 trillion over time.
On Wall Street, U.S. stocks closed Monday's trading session sharply higher, and more than offsetting the losses posted in the two previous sessions, after the U.S. administration released the details of its latest plan to solve the massive, debilitating banking crisis. This was also combined with better than expected data on home sales. The Dow closed up 497 points or 6.84% at 7,776, the Nasdaq gained 99 points or 6.76% to 1,556, and the S&P 500 advanced 54 points or 7.08% to finish at 823.
Asian stocks extended gains today, with Tokyo shares rose 2 percent in early trade, after hitting a seven-week closing high yesterday. A recovery in investor risk appetite boosted higher-yielding currencies versus the dollar and the yen.
Against the US dollar, the British pound traded higher during early deals on Tuesday. At 10:25 pm ET, the pound-dollar pair reached a 6-week high of 1.4696, compared to 1.4575 hit late New York Monday. The pair is currently trading at 1.4686 with 1.484 seen as the next target level.
The British pound that closed Monday's North American session at 0.9358 against the European currency reached a high of 0.9300 at 12:10 am ET Tuesday. The next upside target level for the pound is seen around 0.908.
Against the Swiss franc, the British currency showed strength during Tuesday's early deals. At 9:15 pm ET, the pound-franc pair climbed to a 6-day high of 1.6507, compared to Monday's closing value of 1.6399. If the pair gains further, 1.676 is seen as the next target level. The pair is currently quoted at 1.6482.
The British pound that closed Monday's New York deals at 141.33 against the Japanese yen advanced to 144.05 at 10:15 pm ET. This set the highest mark for the pair since December 1, 2008. On the upside, the pair is likely to target the 147.6 level. The pair is presently trading at 143.58.
The board members of the Bank of Japan suggested that the Japanese economy may begin to recover from the current recession in the second half of this year at the earliest, minutes from the February 18 and 19 monetary policy meeting revealed today.
The members also said that they may need to cut their view of Japan's long-term growth - especially since there was more demand than expected for BoJ funds. The board also said that an exit strategy was needed for the series of economic stimulus measures.
The French February consumer spending and business confidence indicator for March, Euro-zone January current account, UK February CPI and the manufacturing PMI reports from the major European economies are expected to influence trading in the European session today.
Across the Atlantic, today will be a busy day including a testimony on AIG from Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Timothy Geithner to the U.S. House Financial Services Committee.
AIG has come under severe attack for awarding multimillion-dollar bonuses to executives following a $180 billion bailout from the U.S. government.
Markets will also receive information on the Richmond region manufacturing sector. The Richmond Fed manufacturing index is expected to remain unchanged at -51 in March.
The Federal Housing Finance Agency will also release its house price index for January. House prices are expected to fall 0.9% against a 0.1% increase in December.
In the afternoon, James Bullard, President of the Federal Reserve Bank of St. Louis, will speak in London.
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