Tuesday morning in Asia, the dollar slumped to a 6-week low against the pound as world stocks extended gains on optimism about a U.S. program to relieve banks of distressed assets, reducing the safety appeal of the US currency. The dollar also edged down against the euro and the franc. But the dollar surged to a 6-day high against the yen due to across the board weakening of the latter.
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.
Treasury Secretary Timothy Geithner said his department plans a program to help investors buy up the toxic assets through a combination of $100 billion in TARP funds and private investment.
To help unfreeze these markets, provide a mechanism for working through these problems, we're announcing a two part program, Geithner said. One piece is a financial mechanism to allow banks to sell pools of loans. One piece is a financial mechanism for investors to sell or purchase securities.
The program is designed to boost current efforts that have largely been unsuccessful in unfreezing the credit markets and promoting consumer lending.
The Treasury's response 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.
Overnight, U.S. stocks closed sharply higher following the announcement of the Obama administration's plan as well as on a better-than-expected existing home sales report.
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.
The dollar, which closed yesterday's trading at 96.98 against the yen climbed to a 6-day high of 98.04 during early Asian deals on Tuesday. The next upside target for the dollar-yen pair is seen around the 99 level.
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.
In early Asian trading on Tuesday, the dollar fell to a 6-week low of 1.4696 against the pound. If the dollar weakens further, it may likely target the 1.498 level. At yesterday's close, the pound-dollar pair was quoted at 1.4573.
The dollar declined to 1.3679 against the euro in early Asian deals on Tuesday. This may be compared to Monday's closing value of 1.3637. The near term support level for the dollar is seen at 1.374.
During early Asian deals on Tuesday, the dollar slipped against the Swiss franc. As of now, the dollar-franc pair is worth 1.1224, down from yesterday's close of 1.1248. On the downside, 1.116 is seen as the next target level for the pair.
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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