The greenback rallied from 91.80 to 93.59 and from 1.0705 to 1.1125 against the Japanese yen and Swiss franc respectively on Monday on speculation President-elect Barack Obama’s fiscal stimulus will include hundreds of billions of dollars of tax breaks (as much as $310 billion) and will help the U.S. economy recover from recession.
The single currency tumbled from 1.3964 to 1.3546 against the dollar on Monday on speculation the European Central Bank will cut interest rates by 50 basis points to 2.00% next week from current 2.50% after ECB Vice President Lucas Papademos said on Sunday that more rate cuts may be needed to shield the euro zone economy from recession. Some investors and economists are expecting ECB to cut the borrowing costs further to 1.75%.
Cable rebounded from last Friday’s low of 1.4375 to 1.4740 due to active cross buying in sterling on bet that U.K. government will guarantee asset-backed securities to revive bank lending. Investors are expecting the Bank of England to expand the 200 billion-pound ($290 billion) program that allows banks to swap illiquid securities for government debt.
Tuesday will see the release of U.K. Nationwide house price, German, eurozone and U.K. services PMI data, eurozone HICP, U.S. durable goods, factory orders, ISM non-manufacturing and pending home sales.