global central bank comments

US Dollar, Japanese Yen Hold Strong as Geithner, Bernanke Fail to Alleviate Market Fears

Tuesday, 10 February 2009 17:37:59 GMT  |  Terri Belkas, Currency Strategist

Commentary by Treasury Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke has done little to improve risk appetite, as evidenced by the more than 4 percent drop in US equities, rise in volatility, and jumps in the US dollar and Japanese yen.

Mr. Geithner's speech focused on the need to improve the flow of credit, strengthen banks, and provide for homeowners and for small businesses. These are the plans he announced:

- The Treasury will require banking institutions to go through comprehensive stress tests in order to achieve cleaner and stronger balance sheets. Institutions that need additional capital will be able to access “a new funding mechanism that uses funds from the Treasury as a bridge to private capital” that will encourage institutions to replace public assistance with private capital as soon as that is possible. According to Mr. Geithner, the Treasury’s investments in these institutions will be placed in a new Financial Stability Trust.

- A Public-Private Investment Fund will be established by the Fed, the FDIC, and the private sector, which will target toxic assets. The goal is to “help start a market for the real estate related assets that are at the center of this crisis” and to “help provide a market mechanism for valuing the assets.” The program should reportedly provide up to $1 trillion in financing, but will start with $500 billion with expansion based on “what works.”

- A Consumer and Business Lending Initiative will be started by the Treasury in conjunction with the Federal Reserve in order to “kick start the secondary lending markets” and lower borrowing costs. This will be an expansion of the Federal Reserve’s Term Asset Backed Securities Loan Facility (TALF) with capital from the Treasury and financing from the Federal Reserve to target the markets for small business lending, student loans, consumer and auto finance, and commercial mortgages.

- Within the next few weeks, President Obama’s economic team will formulate and announce a comprehensive plan to address the housing crisis. 

Meanwhile, Mr. Bernanke's speech focused primarily on their efforts to improve transparency of their various lending facilities, but there was little in the way of new information announced (though the Q&A session is still going on).

Currency Performance versus Japanese Yen Since Monday's Close

Source: Bloomberg

Currency Performance versus US Dollar Since Monday's Close

Source: Bloomberg

Dow Jones Industrial Average (Daily Chart)

Source: Bloomberg

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