The dollar declined versus on Monday as the Federal Reserve signaled that record low borrowing costs would remain for some time in the near future. The Federal Reserve Bank of New York said in its statement that No inference should be drawn as to policy tightening. In addition, earnings optimism further encouraged investors to buy riskier assets. Higher-yielding currencies such as aussie and New Zealand dollar traded near multi-month high against the greenback at 0.9286 and 0.7553 respectively in New York afternoon. DJI closed up 96.28 points and recouped 10000 level on Monday.
Euro hit fresh 2009 high at 1.4982 against the dollar after Eurogroup finance minsters' meeting at Luxembourg on Monday although Eurogroup chairman Jean-Claude Juncker said that all eurozone countries agreed to stick to G7 statement on forex and no discussion on alternatives to G7 at this meeting. However, Juncker, ECB President Jean-Claude Trichet and EU Economic Affairs Commissioner Joaquin Almunia will travel to China to discuss the exchange rate policy later. In addition, the ministers have a common view that the exit strategy should take off if the precondition are fulfilled in 2011. Earlier in Asian session, euro fell sharply to 1.4829 on cross selling vs yen on speculation that eurozone officials will voice their concerns over the strength of the single currency. Euro rebounded strongly from there as the Asian and European shares extended gains as the session progressed.
The British pound rallied against the dollar to a four-week high at 1.6425 on Monday. Earlier in European morning cable dropped to 1.6240 partly due to UK's Sunday Times reported that BOE's Adam Posen was quoted in the newspaper interview that 'he is ready to back an increase in the Bank's 175 billion pound quantitative easing program next month.' However, the strength in stock markets around the globe increased the demand for perceived riskier assets. Cross buying in sterling also helped to lift the pound as eur/gbp fell sharply from 0.9190 to 0.9105 in New York afternoon before recovering.
Data to be released on Tuesday include PPI in Germany; PSNCR in U.K; building permits, housing starts, PPI and PCE in U.S.; leading indicators and BOC rate decision.