The US dollar gained stability against a basket of currencies as the dust settled from Wednesday’s Fed announcement. On Thursday, the Fed debuted its long-awaited program to resuscitate consumer and small business lending. The Fed pledged $200 billion in an effort to revive lending and help pull the economy out of the deepening recession. Off to a stuttering start in the first round of the Term Asset-Backed Securities Loan Facility, known as TALF, big investors applied for only $4.7 billion in loans.
Although fears of inflation stoked many investors, Wall Street is set to edge higher today with a rebound in shares of natural resources companies which could push the dollar weaker against a basket of currencies.
The euro weakened against its overnight highs against the dollar, but was set to have its biggest increase since its inception in 1999. The slight weakening against the dollar comes after the Eurozone industrial output dropped 3.5% in January. Pointing to a further contracting economy the ECB is under intense pressure to cut rates at their April 2 meeting.
European Union leaders agreed today to provide 75 billion euros ($103 billion) in new loans to the International Monetary Fund in an effort to fight the global recession. Pressure from the US to increase the European economic stimulus plan was brushed off.
The British pound maintained its gains against the dollar, as Bank of England’s chief economist Spencer Dale hinted that Britain may have seen much of the recession. Though economic data this past week point to a continued downturn, Dale said the economy will begin growing again by the end of the year and expand at normal rates throughout 2010.
The Japanese yen weakened 1.1% against the dollar after profit-taking but remains steady against the dollar. As Wednesday’s news settles, some investors began questioning the impact of the Fed’s unconventional policy measures.
The Canadian dollar weakened against the greenback as oil prices dipped below $51 a barrel. Oil fell from a four-month high as attention returned to weak demand and high inventories.
The Australian and New Zealand dollars held their ground against the US dollar as the appeal for commodities increased in the wake of the weakening greenback. Some analysts are forecasting that the Aussie could push towards 70 cents in the next week, while the kiwi may be brought back down to earth on poor data next week.
The Mexican peso remains steady against the dollar ahead of Banco de Mexico’s interest rate announcement today. Analysts are forecasting a quarter percent cut bringing Mexico’s benchmark rate to 7.25%. While central banks around the world have drastically slashed interest rates close to zero, Mexico’s central bank has been slow in reducing interest rates which wreaked havoc on the peso back in February.
10-Year Treasury Note Yield: 2.597%
Dow Jones Industrial Average: 7,423.58 + 22.78