Dollar Makes Sharp Gains

On Monday the US dollar made sharp gains against the Euro and the Japanese Yen prompted by the stimulus plan announced by the incoming Obama administration and the anticipated cuts by Central banks. Investors were pleased by the Forex opportunities offered by the new administrations plans to institute a proposed stimulus package that could be worth up to $775 billion. The Obama administration is also seeking $310 billion in tax cuts.

Fed and Treasury Pro Active Addressing Crisis

Ron Simpson, director of currency research at Action Economics had this to say, “The combination of tax cuts, infrastructure spending and job creation under the Obama stimulus package takes out some of the pain from the economic recession we’re in. The Federal Reserve and U.S. Treasury are being pro-active in dealing with this crisis. I think at some juncture, the U.S. efforts would turn the economy around quicker than many of the other countries and that should be dollar-positive.â€

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Yen at Three Week Low

The Yen fell to three week lows as risk appetite and Forex opportunity returns amid hopes for global economic recovery and stock market gains. Some analysts believe that the Euro’s recent gains were too fast given the dismal state of the Euro Zone economy. Against the yen, the dollar climbed to 93.56 yen its highest since December 8. The Japanese currency gained 19% in 2008 as investors sold assets financed with the Yen’

s cheap rates and took advantage of the Forex opportunities offered by the Yen.

ECB Says More Rate Cuts Needed

The Euro fell after ECB Vice President Lucas Papademos said that more rate cuts may be needed to shield the Euro Zone from a deeper recession. Previously ECB officials have resisted aggressive rate cuts. Figures released Monday showed consumer price growth slowing in December and similar Spanish data showed inflation tumbled to a 10-year low. These figures are putting pressure on the Central Bank to cut rates further.

Many expect the costs of borrowing to fall sharply to 1.75%. Tightening conditions may prompt the ECB to cut rates more aggressively than expected and may also cause a drop in the Euro Dollar rate. Hopefully these moves will create more Forex opportunity for both traders and investors.