US asset plan pushes dollar high against yen and euro
On Friday, dollar went up against yen and euro following the boost from the reports about a consideration given by government of United States towards dealing with noxious bank assets. According to the news that boosted the greenback, government is thinking about a way to tackle bank assets sourcing the credit crisis.
In order to tackle the illiquid assets, Henry Paul (U.S. Treasury Secretary) and Ben Bernanke (Federal Reserve Chairman) plans to utilize the weekend for working on a comprehensive plan. These assets have been responsible for making Lehman Brothers file for economic failure, for destroying bank balance sheets and provoked the rescue of American International Group.
The plan possibly will involve fixing of a fund for purchasing distraught assets from the bank, similar to Resolution Trust Corporation. In late1980s, RTC was used for attacking bad debts from loan and saving crisis.
Head of foreign exchange strategy for Japan at Royal Bank of Scotland, Masafumi Yamamoto, said that investors purchased greenback believing that the new steps will deal with crisis in financial system. He also added that the news sparked the purchase of dollar and assisted in calming down jittered investors about the risk assets.
The currency of United States was 1.2 percent high with 79.049. The index follows performance of United State’s currency against other six key currencies. After a two week high at $1.4543 on Thursday, Euro went 1.3 percent down at $1.4160
From a low of 105.40 yen, dollar went 1.6 percent up with 107.10 yen after it took a jump of more than a yen. With Asian stocks rising up calming the investor risk aversion, yen went down. Shares of Tokyo’s Nikkei rushed forward to 3 percent, whereas stocks in Hong Kong moved 6.5 percent and in South Korea it soared to 4.3 percent.
The purchase of yen had been stirred up by the loosening of carry trades, in which low yielding Japanese currency was utilized by players for funding buying of assets with higher returns. The euro moved up to 151.70 yen with a rise of 0.3 percent. While, yen came down to 1.7 percent and 1.1 percent against Australian dollar and sterling
In spite of the announcement from Federal Reserve regarding the pumping up of billions of cash in the financial system, in coordination with central banks, many in the market still consider the situation unstable and unsteady.
The reluctance seen in bank towards lending due to stress in financial zones is due to the rescue of distressed insurer AIG and fall of Lehman Brothers, which also added to the jitters in banking zone.
According to a senior manager of the Forex sales group for a European bank, the optimism that is bracing stocks is build on unstable ground due to market still being surrounded with doubt regarding the specification about the crisis plan of united states. He also added that probably the hope will not survive more than a weekend.