The dollar rallied to a 3-month high versus the yen on Tuesday due to renewed fears over the weak economy in Japan, with investors worried that Japanese officials will be unable to find ways to boost the nation's stock market. The yen declined across the board, hitting intra-day lows of 96.94 and 124.75 versus the greenback and euro respectively, while the Japanese currency weakened below the 140.00 level against the sterling for the first time in over 6 weeks. Japan Prime Minister Taro Aso met with U.S. President Obama and stated that a loss of confidence in the U.S. dollar would have a huge effect on the global economy and that the U.S. and Japan would cooperate to respond to the economic crisis.
In other news, Fed Chairman Ben Bernanke said in his testimony to the Senate Banking Committee that the U.S. economy remains at risk but an economic recovery should take place in 2010 if appropriate government measures are implemented in time. His testimony commenced at the same time as the release of a report which showed that U.S. consumer confidence hit a record low in February with a reading of 25.0 (compared to the downwardly-revised figure of 37.4 in the previous month). Bernanke also said that it was not necessary for U.S. banks to be nationalised and financial stocks received a boost from his comments, with the Dow ending the day up 236 points.
The euro rose from its Asian low of 1.2662 to 1.2878 on cross buying versus yen despite the release of German Ifo data which showed a drop in the index to 82.6 in February from 83.0 (economists had expected no change), however, traders were wary of negative news regarding the risk of default for Eastern European banks. The British pound fell to 1.4375 on cross selling especially versus euro before rebounding in New York afternoon as U.S. equity markets added to their gains and also as gbp/jpy rose to an intra-day high of 140.64.
Economic data to be released on Wednesday include Japan trade balance, German trade data and GDP, with U.K. fourth-quarter GDP due out at 09:30GMT. U.S. existing home sales are expected to increase by 1.3% in January, following the 6.5% rise in December 2008.
