The Dollar rose on Thursday on views liquidity conditions for banks were not as dire as initially thought after a tepid Federal Reserve auction to swap poor-performing investments. Analysts said the Dollar also got a lift from investors covering short positions after a recent sell-off and warned that underlying sentiment on the Dollar remained bearish.
Results from the Fed's $75 billion Term Securities Lending Facility, or TSLF, showed Primary Dealers submitted just $86.1 billion of bids for the Fed's offering of low-risk US government securities for 28 days. The TSLF is part of a liquidity campaign by the central bank to help the distressed financial sector, which has suffered more than $120 billion in write-downs tied to sub-prime mortgage investments. But details of discount window borrowing for the week ending Wednesday showed primary dealers more than doubled their direct borrowing from the Fed.
EurUsd was flat yesterday at 1.5812, less than 1 cent below last week's record highs above 1.5904. The Euro is still up more than 8% this quarter, remaining on track for its strongest quarterly performance since late 2004. UsdJpy briefly rose above 100 shortly after the announcement of the TSLF auction results. It was last trading at 99.54 up 0.38%. UsdChf was flat at 0.9923.
Analysts said investors were merely pausing before driving the Euro to fresh all-time highs against the Dollar, with US economic data continuing to point to further Federal Reserve interest rate cuts. They also said reports showing the US economy grew in line with market expectations in the fourth quarter, while jobless claims declined last week, had minimal impact on the market.
In its final estimate of fourth-quarter Gross Domestic Product, the Commerce Department said economic growth slowed to an annual pace of 0.6% from a robust 4.9% in the previous three months. The number was unchanged from the government's previous estimate.
Thursday's data also showed the number of US workers filing new claims for jobless benefits fell by 9,000 last week, although a more reliable gauge of lay-off trends rose to its highest in more than two years.
The Federal Reserve has slashed the benchmark federal funds rate to 2.25 percent from 5.25 percent just over six months ago, while the European Central Bank has kept its refinancing rate at 4 percent.