The U.S. dollar ended an extremely volatile week on a very weak note with speculation that the U.S. government bailout plan will fail to restore investor’s confidence in the U.S. economy.
The U.S. dollar had a mixed performance on Wednesday. The greenback was particularly strong against low yielding currencies like the Japanese yen, but lost some ground against commodity currencies like the New Zealand dollar and Australian dollar.
The US dollar rose on Tuesday, but it was more of a technical retracement rather than a true rally as the majors failed to register any significant directional moves.
The US dollar plummeted more than 2 percent against the euro on Monday, especially as shifting interest rate expectations start to move in favor of the euro and British pound.
After a wild week of trading, the US dollar ended the week lower as prospects of further intervention by the US government in the financial markets provided a boost to carry trades. Indeed, with the fed funds rate sitting at 2.00 percent, the US dollar is essentially a low-yielding currency like the Japanese yen.
The US dollar plunged nearly 1 percent against the euro and also fell versus most of the majors on Friday – especially the commodity dollars – as prospects of further intervention by the US government in the financial markets provided a boost to carry trades.
The Federal Reserve left rates unchanged at 2.00 percent, but subsequent market-wide reaction was mixed as Fed Fund futures had been fully pricing in a 25bp cut to 1.75 percent.
Since the start of trading on Sunday, the US dollar has had a wild ride following the news that Bank of America would buy Merrill Lynch, Lehman Brothers filed for bankruptcy, and insurer American International Group (AIG) sought $40 billion in capital.
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