Although daily changes were rather muted, the USD continues to remain the favored currency against the majors.  Rising slightly against the Euro and British Pound, the dollar soared against the Japanese yen while taking a back seat against the commodity currencies.  With little to trade off on the day, market participants took note of key events that continue to show the current administration’s work towards an economic rebound.  In particular, the Obama mortgage plan took center stage as further details of foreclosure prevention and citizen support were revealed.  Comprehensive, the plan continues to be received with little optimism as the masses remain deadset on the timeliness of the package rather than the stimulus plan itself.  The sentiment should keep the current dollar enthusiasm minimized, helping a likely short term turnaround in the near term. Additionally, speculators scanned the minutes of the most recent Federal Reserve meeting which were released this afternoon.  Aside from a forecasted cut in overall growth in the US economy, policy makers moved for a longer term inflationary assessment, a method in line with other central bank governing boards including the ECB and BOE.  The move is keeping US central bankers’ targeting 2 percent inflation.  However this is contrary to some views as recent liquidity injections are likely to boost the prospect of rising prices in the short term, dampening dollar strength.

MPC Minutes Weigh on Pound Prospects

The pound sterling suffered earlier on in the morning session following the release of the MPC’s meeting minutes.  Although vote results were relatively in line with expectations, an 8-1 win in favor of interest rate cuts, the minutes revealed a policy making body that continues to see itself between a rock and a hard place.  With further interest rate cuts unlikely to kick start credit markets and increase stimulus, the governing board has heavily considered the idea of creating liquidity through printing more money.  The scenario has pound proponents shivering as a further increase in liquidity is likely to devalue the underlying currency in the short term.  As a result, traders will be keying off of next week’s heavier schedule in order to assess the probability of when the Bank of England will actually move on the idea.

Japanese Yen Falters Ahead of Decision

With one of the worst economic recessions in sometime, the market continues to remain particularly interested in the Bank of Japan’s interest rate decision, expected to be unveiled this evening.  Interest rates are already hovering zero percent, giving Governor Shirakawa very little room in the way of rate reductions.  As a result, further liquidity stimulus is likely expected through the purchase of securities as well as corporate debt and commercial paper in helping to ease the lack of movement in markets.  The move isn’t that uncommon as similar plans have been enacted in the land of the rising sun in the past.  The question now remains is how long will the plan be in effect in order to help a rebound in the 12.7 percent annualized drop in economic growth last quarter.  As long as the curiosity looms, the Japanese yen will continue to fall out of favor with traders.

Tags: Bank of England Minutes, Federal Reserve Minutes, Obama Mortgage Plan

This entry was posted on Wednesday, February 18th, 2009 at 11:19 pm and is filed under British Pound, Economic Indicators, Japanese Yen, Stimulus Plan, US Dollar. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.