The US dollar was lifted by safe haven flows amid global economic gloom. Investors remain skeptical about the U.S. $787 billion economic stimulus plan even though U.S. President Barack Obama signed it into law on Tuesday. News that General Motors Corp and Chrysler on Tuesday asked for nearly $22 billion in extra U.S. government loans kept investors nervous about a ballooning budget deficit. Meanwhile, U.S. housing starts plunged to a new record low in January, sliding 16.8 percent from December. The market will tune in to today’s U.S.
Federal Reserve Chairman Ben Bernanke’s speech and the release of the latest rate-setting meeting minutes. Bargain hunting is expected to lift U.S. stocks today.
Concerns about the exposure of banks to the weakening economies in Eastern and Central Europe sparked a huge pullback in risk appetite. Moody’s Investors Service said the recession in Eastern Europe will be more brutal than elsewhere hammered the euro lower. The euro is expected to weaken further. In other news, Germany’s cabinet passed a law allowing it to nationalize banks.
The yen remains weak ever since data showed Japan’s economy shrank by a whopping -12.7 percent on an annualized basis after a -2.3 drop from the prior period. News of Japan’s finance minister resignation also dented yen sentiment. However, the global economic disaster will continue to allow the yen to keep its safe haven status.
The British pound softened after Bank of England’s February 5 meeting minutes showed that the committee unanimously considered alternative policy measures, such as buying U.K. debt as part of quantitative easing to get its economy out of a recession. Buying British government bonds should help ease credit conditions. Right now, it is up to the government how much new money is created. More rate cuts are also expected in Britain.
Commodity currencies such as the Australian, New Zealand and Canadian dollar all tumbled as risk appetite waned. Expectation of more economic pain ahead continues to keep investors on edge.
