The U.S. dollar initially traded higher after the Treasury released details for the Public-Private Investment Program aimed at taking bad debts off bank balance sheets. Their actions help to create a floor under the toxic assets, reassuring global investors. However early gains in the U.S. dollar was overshadowed by the massive rally in the U.S. equity market. The 6.8 percent rise in the Dow or close to 500 point move reflected stronger risk appetite and growing demand for higher yielding currencies such as the Euro, Australian and New Zealand dollars at the expense of the greenback. If the Dow hits 8000, we could see a new 2 month high in the EUR/USD above 1.38.

Euro, pound and Aussies were all higher at the start of European trade boosted by improved sentiment towards risk as equity markets across the region rallied by more than 1.5% starting the third day of the week on a somewhat brighter note. Part of the reason for today’s optimism has to do with reports that President Obama’s stimulus plan has a provision to establish a “bad bank” that would acquire up to $1 Trillion worth of toxic US assets.