The US dollar extended gains on the yen and euro on Thursday as US senators prepared to vote on a major economic stimulus plan and the market awaited a key plan to steady the banking sector.
The markets showed little reaction to news that the European Central Bank left its key interest rate unchanged at 2.0 percent, as largely expected, but flagged a possible cut in March.
The pound meanwhile was firmer against the dollar after the Bank of England cut its benchmark lending rate half a point to 1.0 percent, the lowest level since the central bank was founded in 1694.
Although low rates generally make a currency less attractive, that logic has been upset in recent weeks amid expectations of a stimulative effect that could lift sluggish economic activity.
The euro fell to 1.2786 dollars at 2200 GMT from 1.2847 late Wednesday.
The dollar firmed to 91.13 yen from 89.42.
The US unit shook off news that new US jobless claims rose to a 26-year high and focused on action in the Senate on a huge economic stimulus plan and an upcoming US Treasury plan to steady the banking sector.
The Treasury confirmed late Thursday that a new bank stabilisation plan would be unveiled Monday by Secretary Timothy Geithner but offered no details.
Kathy Lien at Global Forex Trading said this news was positive for the greenback.
"This is one of the few things that could strike a meaningful recovery in the currency and equity markets," she said.
"If traders deem Geithner's plan as satisfactory, we could see a further recovery in the financial markets despite the fact that the US economy will get worse before it gets better."
Al Goldman at Wachovia Securities said there were hopes the US economy could stabilise, especially if Congress approves the massive stimulus measure currently worth some 900 billion dollars.
"The market welcomed news that an economic stimulus plan may have enough votes to pass the Senate, and the government will announce a bank relief plan next week," he said.
"There were hopes Washington might suspend an accounting rule that requires banks to value assets at current levels."
Dealers said they expected the euro to remain under pressure, given concerns about European banks' exposure to the slump in new, eastern member states, and the dire state of the eurozone economy.
"The ECB still looks a bit behind the curve compared with other central banks but today's (official) comments have brought some encouraging signs that it is starting to face up to the grim economic reality," Jennifer McKeown of Capital Economics said.
"We still expect interest rates to fall to zero, or thereabouts, a much lower profile than markets currently anticipate," McKeown added.
In late New York trade, the dollar stood at 1.1724 Swiss francs from 1.1581 on Wednesday.
The pound lifted to at 1.4623 dollars after 1.4467.
The markets showed little reaction to news that the European Central Bank left its key interest rate unchanged at 2.0 percent, as largely expected, but flagged a possible cut in March.
The pound meanwhile was firmer against the dollar after the Bank of England cut its benchmark lending rate half a point to 1.0 percent, the lowest level since the central bank was founded in 1694.
Although low rates generally make a currency less attractive, that logic has been upset in recent weeks amid expectations of a stimulative effect that could lift sluggish economic activity.
The euro fell to 1.2786 dollars at 2200 GMT from 1.2847 late Wednesday.
The dollar firmed to 91.13 yen from 89.42.
The US unit shook off news that new US jobless claims rose to a 26-year high and focused on action in the Senate on a huge economic stimulus plan and an upcoming US Treasury plan to steady the banking sector.
The Treasury confirmed late Thursday that a new bank stabilisation plan would be unveiled Monday by Secretary Timothy Geithner but offered no details.
Kathy Lien at Global Forex Trading said this news was positive for the greenback.
"This is one of the few things that could strike a meaningful recovery in the currency and equity markets," she said.
"If traders deem Geithner's plan as satisfactory, we could see a further recovery in the financial markets despite the fact that the US economy will get worse before it gets better."
Al Goldman at Wachovia Securities said there were hopes the US economy could stabilise, especially if Congress approves the massive stimulus measure currently worth some 900 billion dollars.
"The market welcomed news that an economic stimulus plan may have enough votes to pass the Senate, and the government will announce a bank relief plan next week," he said.
"There were hopes Washington might suspend an accounting rule that requires banks to value assets at current levels."
Dealers said they expected the euro to remain under pressure, given concerns about European banks' exposure to the slump in new, eastern member states, and the dire state of the eurozone economy.
"The ECB still looks a bit behind the curve compared with other central banks but today's (official) comments have brought some encouraging signs that it is starting to face up to the grim economic reality," Jennifer McKeown of Capital Economics said.
"We still expect interest rates to fall to zero, or thereabouts, a much lower profile than markets currently anticipate," McKeown added.
In late New York trade, the dollar stood at 1.1724 Swiss francs from 1.1581 on Wednesday.
The pound lifted to at 1.4623 dollars after 1.4467.
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