Market News

The U.S. dollar fell by almost 1% against the Japanese Yen as investors are wary about the impact of the $700 billion bailout plan aimed at dealing with the liquidity crisis in a comprehensive manner. The rescue plan is currently awaiting approval by the U.S. Congress. Once approved, it will give the U.S. Treasury the power to acquire all “toxic” mortgage-related debt currently on the books of financial institutions, including subsidiaries of foreign banks in the United States.

In Tokyo today, the U.S. Dollar surged against the Japanese Yen and the Euro following the announcement that the United States government will soon put in place a comprehensive plan to address the liquidity problem of the financial institutions. The Federal Reserve Bank Chairman and the U.S.

In London trading today, the U.S. Dollar dropped to a 4-month low against the Japanese Yen, but gained against high-yielders because investors moved in to safe-haven assets after the collapse of the U.S. investment giant, Lehman Brothers.

Following the announcement that Lehman Brothers, the fifth largest investment bank in the U.S. will be filling for bankruptcy protection, investors quickly moved out of U.S. Dollar-denominated assets into Yen-denominated assets. As a result, the Japanese Yen is poised to gain significantly against the U.S. Dollar.

In early morning trading today, the U.S. Dollar and Japanese Yen lost ground against the Euro, amid investors’ hopes that Lehman Bros., a U.S.-based investment banking giant, will soon be saved. This boosted equities and as a result, currency dealers promptly cashed in on the currencies’ strong gains in recent weeks.

The U.S. Dollar hit a one year high against the Euro and a group of currencies due to U.S. investors repatriating overseas investments amid escalating concerns about global economic growth. According to the July figures, the U.S. trade deficit widened to a level not expected by most economists, and as a result, the U.S. Dollar was under pressure against the Japanese Yen.

The U.S. Dollar gained slightly in choppy trading today despite investors’ concerns about uncertainties regarding the survival of Lehman Brothers and the overall problems of the impact of the US financial sector on the global economy. Lehman Brothers recorded a loss in the third quarter and desperately looking for additional capital to support its operations.

The U.S. Dollar gained against the Euro today as crude oil prices fell, again. However, following a rally which was ignited by the bailout of the two giant mortgage firms, Freddie Mac and Fannie Mae, the broader gains were reduced by mild profit-taking. In early morning trading in New York, the Euro dropped and traded at 0.3% at $1.4086.

The U.S. government took over the two mortgage giants, Freddie Mac and Fannie Mae, in an attempt to rescue the entire housing sector from total collapse as these institutions have guaranteed half of the $12 trillion in mortgage debt outstanding in the U.S. These two institutions have been experiencing liquidity crisis as a result of the sub-prime lending problems that has afflicted the U.S. economy over the past 18 months. As a result of this rescue, the U.S. Dollar surged to a one-year high against major currencies. Investors moved into higher-yielding currencies and shied away from currencies such as the Japanese Yen.

Despite trading higher early in the day, the U.S. Dollar lost ground versus the Euro, as a result of much worse than anticipated unemployment figures, which were released a short while ago. Prior to the release of the news by the U.S. Labor Department, the U.S. Dollar had been enjoying an 11-month high against the Euro, buoyed by traders buying up the greenback in advance of the release.

It is now obvious the economies in the euro zone are on the brink of recession and as a result, the European Central Bank (ECB) kept interest rates unchanged at 4.25%, a 7-year high, in order to fight inflationary pressures in the euro zone. Officials of the ECB policy makers met in Frankfurt today and decided to kept rates unchanged. This decision was predicted by most economists surveyed. According to analysts, the ECB will likely wait until the end of the first quarter of next year to decide whether or not to reduce interest rates.

On Wednesday, September 03, 2008, the U.S. Dollar continued its run of price increases, reaching its highest price in over 11-months against major currencies. The greenback’s rise continues as investors start to regain lost confidence in the U.S. currency, even amid a backdrop of worsening global economies.

The U.S. Dollar extended its 2008 highs against major currencies due to falling oil prices, and the expectations that global inflation would fall. The Euro dropped to a 7-month low against the U.S. Dollar, dropping below $1.45. Analysts have predicted a bleak economic outlook for the U.K. economy and as a result, the U.S. Dollar pushed the Pound Sterling to fall below $1.80, the lowest price since April 2006. The GBP also fell to a new record low versus the Euro and experienced a 12-year low versus a basket of major currencies.

After the release of some hawkish comments from a European Central Bank official, the Euro rebounded slightly, bringing to the fore again the possibility that the Euro zone could see a Arise in interest rates sometime in the near future. Klaus Liebscher of the European Commercial Bank Governing Council, and the outgoing governor of the Central Bank of Austria, commented that there was “no room for complacency” as regards both high inflation and interest rates in the Euro zone.

The U.S. Dollar gained slightly following comments from the European Central Bank president, Jean-Claude Trichet. Although investors expected the ECB to hold interest rates steady at 4.25%, the questions and answers session with the ECB president, which followed yesterday’s meeting, surprised few players in the currency market.