The US dollar softened as risk appetite came back on optimism that government efforts will revive global economic growth. However, dollar gains will be short-lived as the markets continue to fear more bad news out of the U.S. banking sector, further job losses, and a deepening global recession. Uncertainty over President Obama's stimulus package that could cost close to $900 billion and U.S. payrolls data on Friday will keep investors on edge. Risk appetite remains weak. Thus, the U.S. dollar could rebound in the near term.

The Japanese yen also softened as risk aversion eased. Talk that Bank of Japan plans to buy 1 trillion yen ($11.2 billion) of shares held by financial companies boosted the demand for higher-yielding assets. Despite positive news, the yen quickly bounced back as investors questioned its usefulness.

The euro is trading above $1.2900 and benefited from talk that the European Central Bank will keep interest rates on hold at 2 percent this Thursday. However, further weakness out of the euro zone will remain a damper for the euro in the near term. On Monday, euro zone producer prices fell a steep 1.3 percent, while German retail sales surprisingly fell for a third straight month in December.

British pound fell as the Bank of England is widely expected to cut rates to a new record low of 1 percent from 1.5 percent this Thursday. Worries of more bad corporate earnings news left risk aversion intact. On Monday, investors dumped the pound sterling after Moody's Investors Service cut Barclays credit rating.

The Australian dollar rallied as the market cheered news that the Reserve Bank of Australia aggressively cut interest rates by 100 basis points to a record low of 3.25 percent. Talk of a stimulus spending package that includes A$12.7 billion in grants to families and low-income earners, and A$28.8 billion for infrastructure drove the Aussie higher today.

The New Zealand dollar rebounded slightly from six-year lows as investors hunted for bargains as global risk aversion eased. However, the currency fell against its neighboring Aussie dollar, which gained following a bold rate cut to below New Zealand's rate of 3.50 percent.

The Canadian dollar remains soft as risk appetite remains weak despite news that Australia and Japan revealed measures to stir up economic growth. Investors continue to shy away from riskier investments which have lowered the short-term prospects for the loonie.

Indicative rates:

EUR/USD 1.2998

USD/JPY 88.93

GBP/USD 1.4385

USD/CAD 1.2364

USD/MXN 14.4250

USD/CHF 1.1438

AUD/USD 0.6440

NZD/USD 0.5090

USD/DKK 5.7360

USD/SEK 8.3008

USD/NOK 6.9373

USD/TWD 33.70

USD/CNY 6.8399

10-Year Treasury Note Yield: 2.79

Dow Jones Industrial Average: 7,920.34 -16.49

This market summary is prepared by Union Bank of California's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends.