As the U.S. government agrees to inject $20 billion to rescue Citigroup, the dollar falls against the euro and a basket of currencies on Monday, as risk aversion eased.
European stocks rose, while U.S. stocks pointed to a positive opening in Wall Street. Traders are showing a higher appetite risk. However the forex market is still acting cautious on concerns of a global recessions.
“The forex market continues to be all about risk appetite and its proxy, equities,” said Dustin Reid, director of FX strategy at RBS Global Banking & Markets in Chicago.
The rescue plan “clearly sends a signal that some of the U.S. banks, in the government’s view, are too big and important to fail. The move should also help to calm overall market sentiment for the very short-term,” he added.
Trading morning in New York showed a euro higher than the dollar (EUR/TN 1.2826) and Japanese currency (EUR/JPY 123.61.)
The dollar was also 0.8 percent lower at 86.717 against a basket of currencies.
“Looking back on it, I think the market is concluding that maybe it was the wrong thing to let Lehman fail,” said Chris Turner, head of FX strategy at ING in London.
“So maybe this (Citi package) is the new model for how you handle the systemically-important banks in the States,” he added.
Demand for U.S. stocks rose, while the dollar has been falling since late Friday after news of President-Elect Barack Obama choosing New York President Timothy Geithner as U.S. s Treasury secretary.
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