Forex Market Update: Dollar Eases, AUD, GBP and EUR Gaps Higher

The dollar eased and currencies such as AUD, GBP and EUR gapped higher at the Asian open, with seen linked tenuously to hopes of more bank liquidity measures for both the UK and the U.S. and with Denmark loaning more funds to banks. The positive close in the U.S. stock market and early gains in Asian stock market appeared to help sentiment. But, the dollar retreat stalled with little positive news coming out of the regional economies with Access Economics warning of a recession for Australia and in Hong Kong, Tsang warning of negative growth for Q4 2008 and for negative growth for the first half of 2009 as well. A record fall in industrial output was reported in Japan, with the combination of negative news fueling a reversal in the stock market gains and a stall in the currency gains. EUR-USD, which closed in NY at 1.3285, gapped higher to 1.3355, then traded to 1.3381 highs before ending the session unchanged from opening levels. USD-JPY, bolstered on risk appetite, gapped from 90.60 NY closing levels to 91.00, but gains were limited to 91.24 before pulling back to 90.87 in the afternoon. AUD, NZD, CAD and GBP all gapped higher but ended the session close to morning opening levels. The U.S. holiday on Monday and upcoming Asian Lunar New Year is also seen dampening interest.
The latest U.K. bank rescue deal could see the BoE buying up to GBP50 bln in bank assets through the asset-purchase program, starting February 2. As previously announced the central bank can buy corporate bonds, commercial paper and syndicated loans. Such a structure would in reality be the BoE creating a 'bad bank' to unload toxic assets from the banks to re-establish trust between banks and increase credit availability to households and businesses. The BoE's Special Liquidity Scheme, due to expire this month, will be extended and the window for the Treasury's Credit Guarantee Scheme, through which the government underwrites bank debt issuance, until the end of the year.