The Canadian dollar continued its descent against the US dollar

The US dollar jumped against the yen but fell against the euro on Tuesday after the Federal Reserve's announcement that it will buy commercial paper to unlock the credit market. This morning the Fed announced the creation of a special-purpose facility with the Treasury Department's blessing to begin buying commercial paper, in yet another emergency move aimed at calming chaotic financial markets. The Fed announcement to act as a backstop in the commercial paper market is likely to have a positive reaction in regard to sentiment in the market. However, markets are still looking for the Fed to cut the fed funds rate by 50 basis points on or before its next FOMC meeting on Oct. 28-29.

The euro gained against the US dollar on Tuesday as European Union finance ministers attempted to hammer out ways to alleviate market turmoil, instill confidence in the banking system and ensure that depositors do not lose their money. The euro also extended gains against the yen as steps by the Federal Reserve to backstop the US commercial paper market boosted risk appetite.
Look for the single currency to remain under pressure as it will continue to hover between extreme anxieties over the banking system and hopes the government will deliver a credible solution to the financial crisis.

Sterling slid to 2-1/2 year lows versus the greenback on Tuesday on renewed fears throughout stock markets of reports that the UK government could be forced to provide funding for Royal Bank of Scotland. Look for the pound to remain under pressure on increased concerns over the UK banking system.

The Japanese yen fell across the board after Australia's central bank made a surprisingly large rate cut on Tuesday, but investors remained cautious of taking on risky trades that would involve selling the yen for higher-yielding currencies.
Adding pressure to the yen, the Bank of Japan, which covers the second largest economy in the world, left its key interest rate unchanged at 0.5 percent and its governor completely denied coordinated moves on interest rates.

The Canadian dollar continued its descent against the US dollar as fears of more fallout from the global financial crisis froze money markets, putting a premium on the greenback and undercutting support for commodities.

The Australian dollar recovered from four-year lows on Tuesday after a surprisingly hefty interest rate cut of 100 basis points by the central bank sparked market talk of a coordinated easing in monetary policy globally. The New Zealand dollar bounced off two-year lows on Tuesday, after the surprise one percentage point rate cut in Australia raised hopes for coordinated global action to resolve the credit crisis. The kiwi had plunged as much as 5 percent on Monday as fears the credit crisis would spark a global recession saw heavy selling on equity markets triggering risk aversion.

The Mexican peso plummeted over 3 percent on Tuesday to an all-time low of 12.40 to the dollar, extending huge losses from Monday, when it fell more than 6 percent. Yesterday the peso had its biggest one-day drop in over a decade and stocks sank on fears the global economy was lurching into recession despite efforts to halt worldwide financial panic.