The euro moved higher vis-à-vis the U.S. dollar today as the single currency tested offers around the US$ 1.3345 level and was supported around the $1.3110 level. Traders chased yield plays as risk appetite returned following the U.S. Treasury’s release of US$ 350 billion in funds under the Troubled Asset Relief Program. This second tranche of bailout funds will likely be allocated relatively quickly by the incoming Obama administration. Obama is said to be seeking an additional US$ 825 billion in fiscal stimulus to counter the deepening economic recession. Data released in the U.S. today saw December headline consumer price inflation off 0.7% with the ex-food and energy component flat. Other data saw December industrial production off 2% with capacity utilization lower at 73.6%. Additionally, the University of Michigan consumer sentiment survey for mid-January improved to 61.9 from 60.1, above expectations and the highest reading since September’s print of 70.3. San Francisco Federal Reserve President Yellen said a decline in inflation below one per cent would be undesirable, unwelcome, and we would fight it. Other data saw November net capital inflows decline to US$ 56.8 billion from a revised October of US$ 260.6 billion. In eurozone news, the EMU-15 November trade deficit printed at -€7 billion, down from a €500 million surplus in October. German exports were off a record 10.6% m/m in November. European Central Bank reported To the question is 2 percent the lowest level that you will attain', I say ‘no.’ If you ask me the question 'if you go to zero', I would say ‘no.’ The ECB cut rates yesterday by 50bps and most traders expect another ECB rate cut in March. Chicago Fed President Evans reported It could be useful (for the Fed) to purchase significant quantities of longer-term securities such as agency debt, agency mortgage-backed securities and Treasury securities. Minneapolis Fed President Stern said the expansion of the Fed’s balance sheet to more than US$ 2 trillion does not pose much risk to inflation. Atlanta Fed President Lockhart reported If the second $350 billion tranche of the TARP (Troubled Asset Relief Program) in fact is deployed, in all likelihood, some of that will be deployed to inject further capital into banks. Fed Governor Duke reported The Board is in the final stages of developing a foreclosure mitigation policy for use by the Federal Reserve Banks. Euro bids are cited around the US$ 1.3055 level.
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