The Greenback and Yen fall on speculation that the U.S will buy the toxic assets

The yen and the dollar weakened on speculation U.S. efforts to support the banking system will encourage investors to buy higher-yielding currencies. The yen fell against the Australian dollar as the Federal Deposit Insurance Corp. is likely to manage a “bad bank” the Obama administration will set up to help end the credit crisis, two people familiar with the matter said yesterday. The greenback dropped against the euro before the Federal Reserve ends a two-day meeting today, at which policy makers may announce plans to buy more assets to boost credit markets. “The news about the ‘bad bank’ plan appears to be having a positive impact on market sentiment,” said Toshihiko Sakai, head of trading for foreign exchange and financial products in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s biggest lender. “It seems to be causing selling of the yen.” The USD/JPY is currently trading at 89.19 as of 8:40am, GMT.

A sharp fall in the pound, though volatile, is good for the UK economy but exchange rates will normalise eventually, the head of the Organisation for Economic Cooperation and Development said on Wednesday. "Sterling weakness of course is going to produce more competitive UK exports that is of course good news for the UK economy," OECD Secretary General Angel Gurria told Reuters at the annual meeting of the World Economic Forum. Asked if the Bank of England should intervene to support the currency as France has suggested, Gurria said: "Eventually there will be an adjustment, the normalization of exchange rate movement. Right now it's very extreme and very volatile. Sometimes you want to intervene in situations which are abnormal or exceptional. Then you don't have the expected effect." The GBP/USD is currently trading at $1.4317 as of 8:50am, GMT.

Australia was set to rejoin the list of nations seeking to shore up battered economies with stimulus packages and more aggressive rate cuts after reporting on Wednesday its biggest drop in prices in more than a decade. Policymakers warned of the dangers of the global recession, stemming from the financial crisis that has already cost trillions of dollars and millions of jobs, after a 0.3 percent fall in the consumer price index, the biggest since late 1997. The AUD/USD is currently trading at 0.6685 as of 8:55am, GMT.

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