U.S. Dollar gains on Risk Aversion and Funding Requirements

The U.S. Dollar rebounded versus the Euro and Japanese Yen today because investors took a step back from risky positions when it became clear that Wall Street’s largest 1-day sell off in over 10 years was attributed to the refusal by the U.S. Congress to back President Bush’s $700 billion bail out package.  The package called for the U.S.  Government to buy toxic assets from faltering U.S. banks; the effort is an attempt to revitalize the strained lending markets.

The U.S. Dollar was also helped by banks attempting to raise U.S. funded assets, as money markets continue to remain frozen.  According to Ian Stanndard of BNP Paribas, investors are more risk averse than ever before, and the U.S. currency would likely be supported, specifically against the Pound Sterling and the Euro.  Stanndard’s conclusion is that any attempt to increase liquidity in the central banks will have little effect.

At 07:52 GMT, the U.S. Dollar was up .6% to 104.66 Yen, after reaching a low of 103.50 Yen in overnight trading; the Euro lost .3% to $1.4373, touching a low of $1.4338 overnight.

The Pound Sterling and Euro are also suffering as European banks fall victim to the ever widening financial crisis, compelling investors to seek safe haven in other currencies, such as the Swiss Franc and Japanese Yen.