China’ s GDP printed slightly weaker than expected at 6.1% versus 6.3% forecast – its slowest pace of growth this decade, but despite the lower headline number underlying fundamentals suggest that the Chinese economy continues to expand at a healthy pace.

With U.S. equities rising more than 5.5 percent today, one would expect the improvement in risk appetite to drive the U.S. dollar lower against all of the major currencies. Unfortunately we did not see a broad based sell-off in the U.S. dollar. The greenback only weakened against the Euro and commodity currencies because investors continued to bail out of British pounds and Swiss Francs. It is also interesting that the EUR/USD is well off its highs indicating that the market’s appetite for dollars has not waned dramatically. The catalysts for today’s rally are not convincing and the moves in the currency market are fizzling, which suggests that we have witnessed nothing more than a bear market rally.

The much anticipated announcements from Washington have triggered a dramatic turn in the currency and equity markets. With investors flocking back into the safety of US dollars and the Dow Jones Industrial Average falling 381 points, it is clear that investors are not satisfied with the Obama Administration’s new programs to unlock the credit the market and rescue the financial sector. If today’s announcements were to be measured by their ability to restore confidence in the financial markets, then the new President has failed miserably. Fortunately we are more optimistic and believe that economic stability will be restored under Obama’s leadership, but patience may be needed.

The Federal Reserve is currently holding a two day monetary policy meeting and it will be interesting to see whether they are desperate enough to introduce radical programs that can incite the enthusiasm of investors. With interest rates virtually at zero, a rate cut is not expected, but the central bank is under pressure to take further action. So far, their effort which includes 500bp of easing has helped to prevent the recession from turning into a depression but it has yet to stabilize the economy. The latest string of economic data indicates that the US economy is still on a downtrend and headed lower. The FOMC rate decision tomorrow could be a nonevent for the US dollar, but if the Federal Reserve is desperate enough, they still have the power to surprise the markets.