FX Update
The greenback came under selling pressure following TSY Secretary Paulson’s proposal for regulatory reform. The proposal includes an SEC-CFTC merger, as well as 3 new overarching regulators, which include: a market stability regulator, a prudential financial regulator of federally guaranteed institutions, and a business conduct regulator.
The USD Index was trading flat before heading into the red on Paulson’s comments.
While Paulson’s proposals may lead to improved financial market conditions going forward, they do not clearly address short-term USD weakness. Cable is down 0.42% to 1.9858 and USD/CHF is down 0.5% to 0.99.
The ECB’s Liikanen says EU inflation expectations have “hardened” while highlighting upside inflation risks as a result of food and energy costs. Liikanen also addressed the negative impact of the weak USD, though inflation remained his utmost concern. The ECB provided additional liquidity through a 1-day bill auction in an attempt to cool elevated overnight lending rates. EUR/USD is higher following Paulson’s comments, up 0.2% to 1.5827. EUR/GBP is up 0.57% to 0.7965