U.S. Dollar Retreats in Tokyo after Initial Rise from Liquidity Injection

Late Tuesday, March 11, 2008, the U.S. Dollar surged against major currencies after news of a joint effort by central banks around the globe to inject $200 billion into the troubled financial market.  The U.S. Federal Reserve Bank, together with the European Central Bank, Bank of Canada and Swiss National Bank, have pledged to provide loans to financial institutions in exchange for debt, including those backed by mortgage securities.

Following this news, the U.S. dollar gains were as high as 103.52 against the Yen, and 1.5332 against the Euro.  However, at 9:52 am (00:52 GMT) on Wednesday, March 12, 2008, on the Tokyo Exchange, the U.S dollar retreated against major currencies and traded at 103.03 Yen and 1.5353 against the Euro.

Bank of Tokyo Mitsubishi’s Chief Analyst, Osamu Takashima, believes that this arrangement may, in the short term, relieve fears about the crisis in the financial markets, but that they  will “remain hostage to talk of credit crunch and until private financial institutions complete their write-offs of bad debt, which will take some time.”

In December 2007, the U.S. Federal Reserve injected about $160 billion to ease the liquidity crisis, which resulted in the surge of the U.S. dollar.  It is very likely that the value of the US dollar will rebound given the latest liquidity injection into the financial system.