The dollar firmed up against other major currencies Thursday afternoon as Wall Street grew nervous ahead of the the results of the US governments stress test on banks, driving stocks lower and fueling some renewed risk aversion.
The safe-haven dollar has been battered of late versus most majors, and was on the ropes in early dealing today as traders mulled a slew of central bank news from across the Atlantic.
European Central Bank President Jean-Claude Trichet said Thursday the central bank plans to buy euro-denominated covered bonds, joining the Federal Reserve and other central banks in buying debt under their quantitative easing policies.
At his press conference accompanying the ECB's decision to cut its key interest rate 25 basis points to a record-low 1.00%, Trichet said the ECB will conduct liquidity-providing longer-term refinancing operations with a maturity of 12 months.
Meanwhile, the Bank of England maintained its key interest rate at 0.50%, saying it will scale up its asset-purchase program by 50 billion pounds to 125 billion pounds in an effort to lower borrowing costs.
The dollar plunged to a monthly low versus the higher-yielding euro after the rate calls, but rallied in afternoon dealing as stocks fell. The buck improved to 1.3360 after slipping as low as 1.3469.
Against the sterling, the dollar surged higher in mid-day dealing after hitting a fresh 4-month low earlier in the day. The dollar jumped back to 1.4985, a big improvement from its January low of 1.5196.
The dollar jumped to a 3-week high of 99.74 versus the yen, but leveled off to 99. On a longer term basis, the dollar has been hovering below the century mark for about a month.
Resource-linked currencies like the loonie and aussie have sured against the dollar of late, but with the rally in commodities price losing a bit of steam today, the dollar was able to stabilize.
The buck edged higher to 1.1743 from a 6-month low of 1.1627 against the loonie. At the same time, the buck improved to .7522 from a 7-month low of .7616 against the aussie.
Government data released Thursday indicated that layoffs in the US eased again last week, another encouraging sign for the job market a day before closely-watched monthly statistics are set to be released.
This is the latest in a recent string of releases that have suggested that steep job losses could begin to flatten out soon, as the pace of economic contraction shows signs of slackening.
U.S. regulators are prepared to release the eagerly awaited results of the stress tests conducted on the nation's nineteen largest financial institutions at 5 p.m. EDT today.
The results will lay out how much more capital banks might be required to raise in order to satisfy the new stringent capital requirements. Each of the nineteen institutions will be rated for their ability to weather various economic scenarios.
Leaked reports have suggested that several of the financial companies examined by the government don't need additional capital. Last night on TV, Geithner assured that none of the country's biggest banks are insolvent.
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