the US dollar soared to a 3-month high against the Japanese yen on expectations that additional measures by the U.S. government may help to stave off a further deterioration in the financial sector. On the other hand, the dollar pared its early Asian session's gain against the currencies of UK, Europe and Switzerland. The dollar thus fell from a 4-day high against the euro and the franc.
The U.S. Treasury Department, Federal Reserve and three other federal agencies jointly said yesterday that they will initiate a program on Wednesday to assess large U.S. banks' capital needs and determine whether a bigger buffer is warranted.
New government assistance to Citgroup could fuel speculation that Washington may need to step in to help other lenders as well, while doubts remain about government efforts to stabilize the plunging housing market, where the credit crisis began.
The dollar was also supported by lower oil prices. Crude oil prices extended its decline, sliding toward $38 per barrel on growing economic worries after U.S. stocks slumped to a 12-year low yesterday.
After a brief slide, the dollar advanced against the yen during early deals on Tuesday. Currently, the dollar-yen pair is trading at a 3-month high of 95.74, moving from a low of 94.28 hit at 7:20 pm ET Monday. If the dollar gains further, it may likely target the 97.4 level. At yesterday's North American session close, the pair was quoted at 94.59.
The board members of the Bank of Japan suggested that the Japanese economy may begin to recover from the current recession by the end of the year - despite lowering their expectations for GDP, minutes from the January 21 and 22 monetary policy meeting revealed today.
The board members agreed that financial conditions in Japan have become much tighter in recent months, but they are uncertain of the effect on policy - prompting a need for increased monitoring of financial conditions.
Corporate service prices in Japan fell in January to their lowest levels since March of 1988. The Bank of Japan reported today that the Corporate Services Price Index was down 0.9 percent from the month before. The Index was down 2.2 percent compared to January of last year.
The dollar climbed to 1.4455 against the pound before losing ground at 6:55 pm ET Monday. The pound-dollar pair that closed yesterday's trading at 1.4494 is now worth 1.4546. The next downside target level for the US currency is seen at 1.465.
