Forex Close
USD picked up some strength in the afternoon session, finishing higher vs. most major currencies though the USD Index was roughly unchanged at 71.686. The greenback came under selling pressure following TSY Secretary Paulson’s proposal for an overhaul of financial market regulation. The proposal includes expanding the FED’s role as a market stability regulator as well as other long-term reforms aimed at improving market stability. Paulson provided few references to the weak USD, but reiterated in a later interview that a strong USD was in the US’s best interest.
The ECB’s Ordonez said the European Central Bank will be unable to slow near-term inflation and that financial market conditions have deteriorated in Europe. The ECB’s Liikanen made similar comments while warning of upside inflation risks. The ECB provided additional liquidity through a 1-day REFI operation in an attempt to ease short-term lending rates. The ECB is likely to continue this policy as opposed to reducing its benchmark.
EUR/USD peaked at 1.5896 following Paulson’s comments and is currently trading flat on the day at 1.5796. Cable is down 0.45% to 1.9853, USD/JPY is up 0.5% to 99.76, USD/CHF is down 0.2% to 0.9933 and USD/CAD is up 0.5% to 1.0277.