Dollar gains as China curbs lending, deterring risk demand - Jan 26

Versus the yen, the greenback fell as people familiar with Chinese monetary policy said that China’s banks have begun restricting new loans. As China may be tightening faster than expected, risk aversion become the theme of the day. The pair fell to 89.35 (the lowest level since Dec. 18) in NY afternoon from Asian high of 90.56 before stabilizing.

In other news, the Bank of Japan left its target lending rate unchanged and said it remains committed to fighting deflation.

Federal Reserve policy makers are widely expected to keep their target lending rate unchanged tomorrow and maintain the ‘extended period’ line in describing how long they will keep rates at accommodative levels.

The single currency declined against the dollar as the ECB’s Stark said in a speech in Frankfurt on Tuesday that the central bank is 'seriously concerned about the sharp rise forecast for public deficits and debt in euro member countries.' Euro hit intra-day low of 1.4042 in NY afternoon before rebound.

Data to be released on Wednesday include Australia Westpac leading economic index, Japan trade balance, Australia CPI, Japan BOJ report, U.K. CBI distribution trade, U.S. new home sales and U.S. Fed rate decision.