Federal Reserve to buy Commercial Paper

The Japanese Yen and the U.S. Dollar dropped following the Federal Reserve’s decision today to buy short term commercial paper to assist companies with short term financial needs. The Federal Reserve has established a special-purpose facility which will be responsible for buying commercial paper in the financial markets.  This latest move has been approved by the U.S. Treasury Department.  According to Dustin Reid of RBS Greenwich Capital, the Fed’s announcement to buy commercial paper will have “a positive reaction in regard to sentiment.”

Concerns over the state of the global economy and financial system prompted investors to move out of risky assets and as a result, the US Dollar rose to a 13-month high against the euro and the Japanese Yen yesterday.

On October 7, 2008, in early New York trading, the Euro gained 1.4% against the U.S. Dollar to $1.3682, a change from a low of $1.3444 on Monday, which was sparked by concerns over the state of most of the European banks.  The U.S. Dollar rose by 0.5% against the Japanese Yen to 102.30 Yen.

The Chairman of the Federal Reserve Bank will be speaking about the financial markets and the state economy at 17:15 GMT today and investors will certainly scrutinize his comments for hints about the direction of interest rates in the United States.